About Hedge funds (wiki)
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university endowments and foundations, or high net worth individuals. Worldwide, 61% of investment in hedge funds is from institutional sources as of February 2011. The funds generally invest in a diverse range of assets and employ a variety of investment strategies.
Hedge funds are distinct from mutual funds, individual retirement and investment accounts, and other types of traditional investment portfolios because they can undertake a wider range of investment and trading activities, and invest in a broader range of assets, including equities,bonds and commodities.
Most hedge fund investment strategies aim to achieve a positive return on investment whether markets are rising or falling. Hedge fund managers typically invest their own money in the fund they manage, which serves to align their interests with investors in the fund.Investors in hedge funds typically pay a management fee that goes toward the operational costs of the fund, and a performance fee when the fund’s net asset value is higher than that of the previous year. The net asset value of a hedge fund can be billions of dollars, due to investments from large institutional investors. As of 2009, hedge funds represent 1.1% of the total funds and assets held by financial institutions. The estimated size of the global hedge fund industry is US$1.9 trillion.
Because hedge funds are not sold to the public or retail investors, their advisers have historically not been subject to the same restrictions that govern other investment fund advisers, with regard to how the fund may be structured and how strategies are employed. Hedge funds must now comply with many of the same statutory and regulatory restrictions as other institutional market participants. Regulations passed in the United States and Europe after the 2008 credit crisis are intended to increase government oversight of hedge funds and eliminate any regulatory gaps. (more)