Hedge Funds
A hedge fund is an investment fund that pools capital from accredited investors or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk management techniques. It is administered by a professional investment management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. Hedge funds are generally distinct from mutual funds as their use of leverage is not capped by regulators and distinct from private equity funds as the majority of hedge funds invest in relatively liquid assets.
History of Hedge Funds
The first hedge fund was established in 1949 by Alfred Winslow Jones. Jones was a journalist who had written an article in Fortune magazine about the potential of using short selling and leverage to generate higher returns. He then established a fund that used these strategies, and his fund posted returns of more than 20% per year for the next two decades. Since then, hedge funds have become increasingly popular with investors, and the industry has grown to include thousands of funds.
Comparison Table
| Hedge Funds | Mutual Funds | Private Equity Funds |
|---|---|---|
| Use of leverage not capped by regulators | Use of leverage capped by regulators | Use of leverage not capped by regulators |
| Invest in relatively liquid assets | Invest in relatively liquid assets | Invest in relatively illiquid assets |
Summary
Hedge funds are investment funds that pool capital from accredited investors or institutional investors and invest in a variety of assets, often with complex portfolio-construction and risk management techniques. They are distinct from mutual funds and private equity funds in terms of their use of leverage and the types of assets they invest in. For more information about hedge funds, investors can visit websites such as Investopedia, The Balance, and Hedge Fund Research.
See Also
- Mutual Funds
- Private Equity Funds
- Portfolio Management
- Risk Management
- Leverage
- Short Selling
- Investment Strategies
- Asset Allocation
- Hedge Fund Strategies
- Hedge Fund Performance
