What Is a Hedge Fund?

What is a hedge fund? While many of us stumble on news about hedge funds every day, not everyone knows what a hedge fund is, how it works, and how is it different from other funds that exist (like mutual funds).  So, to shed some light on hedge funds, we have compiled a couple of facts, that explain this mechanism of the investment world.

The general definition of a hedge fund states that it is a collective investment scheme, set up as a limited partnership and involves investing private capital in order to obtain its maximization through speculation. The term “hedge” originally means securing against loss by getting involved in both sides (for example in a bet). So, basically a hedge fund tries to reduce the risk from investing by playing in the field. Hedge funds involve a big variety of strategies, most of which are developed by their managers and/or founders. The common thread is that hedge funds invest in a variety of instruments, and diversify their asset base amongst stocks, bonds, commodities, currencies, and derivatives.

Hedge fund managers usually invest their own money in their funds, and in this way, they can establish an equality between them and other investors–accountability if you will. Obviously, being a hedge fund manager is a rather difficult position, because you’re not only responsible for your own money, but for a host of friends, co-workers, and clients’ fortunes as well.

However, taken into account that most hedge fund managers are millionaires and a select few (about 40) even billionaires, the game is worth the candle, so to speak. If you’re still asking the question “What is a hedge fund manager?“, you can check that link out further.

Let’s move on and tackle the question “What is a hedge fund?” on the following slides: