What is Hedge Fund?
This question on what is a hedge fund is interesting. What is a hedge fund to you may not mean the same as what is a hedge fund to another person. This is because hedge fund has an origin that does not seem congruent to what it does now.
To answer the question on what is hedge fund, here is our take on what is a hedge fund.
Hedge fund is an investment vehicle or fund that is limited to a group of investors, limited to a financial objective, and limited by regulation. Hedge fund undetakes a diverse range of investment and trading activities that is beyond the scope of ordinary investment funds that lay people are accustomed to.
The structure of hedge fund has three parts: (a) the hedge fund company or partnership that holds the money for its operations, (b) the hedge fund investment manager who runs the show like a CEO/director and (c) the investors who pump in the money into the hedge fund.
Most times, the hedge fund investment manager is the chief architect of hedge fund. He / she comes up with a plan to start a hedge fund with very specify style of making money. He /she sets up the hedge fund with his own money, and gets investors who share his / her vision on how to make money in the market to contribute more money.
If the hedge fund makes a correct bet, the hedge fund investment manager gets a fat performance fee while the investors get a healthy return. If the hedge fund investment turns sour, all stakeholders in the hedge fund lose big time.
How does a hedge fund operate in the market? How does it make money that is different from investment funds like unit trust or share investment? In the past, hedge fund earns its name as it often hedge its investments using a variety of methods to offset losses (hence the name hedge fund). More recently, hedge fund has become a term applied to investment funds that do not hedge its investments. Instead they use these hedging methods to increase risk, in the expectation of increasing return.
Hedge fund is not for the faint-hearted. Hedge fund is not for the risk-averse. Hedge fund is not for those without truck loads of cash.
We shall not go into the nitty gritty of how hedge fund works, the mechanism of their investment activities and the secrets of hedge fund operators today.
If you have the stomach for hedge funds, keeping reading Hedge Fund Hedge Fund blogspot.com and we shall reveal more about the hedge fund industry soon.
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