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Finance Dictionary and Glossary of Investment Terms
A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. They are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).
An aggressively managed fund portfolio taking positions in both safe and speculative opportunities.
A risky investment pool, generally open only to well-heeled investors, that seeks very high returns by taking very great risks. Hedge funds typically are free to engage in all sorts of investment gymnastics in pursuit of returns that should (but don''t always) dwarf those available simply by investing in stocks. Hedge funds will short stock, use leverage, options, futures, etc. Hedge funds are usually partnerships whose general partner, sometimes a famous money-manager or wheeler-dealer, gets a bigger cut of the profits as incentive and reward.
A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks according to a valuation model.