A hedge fund is an investment partnership that is offered to accredited investors and institutional investors. In this type of fund, a variety of investors come together to pool their funds and the fund manager invests this money using a variety of sophisticated and aggressive strategies. A hedge fund requires investors to keep their money in the fund for a minimum of one year and nothing less. Investors can withdraw their hedge funds investments by giving their fund manager a narrow period of intimation. As compared to normal funds, these hedge funds are more aggressively managed in order to generate higher returns. This involves using leverage, holding short/long positions in derivatives in domestic as well as international markets.
Understanding accredited and
institutional investors
Accredited investors are individuals or
entities that are allowed to invest in securities that may or may not be
registered with financial authorities. They are individuals who have a net
worth of more than one million dollars and earn a set amount of money year on
year.
Institutional investors on the other
hand are non-bank individuals or companies that trade in securities worth a
significant amount. These include pension funds, mutual fund companies,
commercial banks, insurance companies and more. They are some of the biggest
players in the market because of their financial status.
Hedge funds are less strictly regulated
by the SEC or Securities and Exchange Commission. Big investors usually entrust
big financial advisory services to
manage their hedge fund investments. Due to the high investment values, these
investors also expect a significant return on their investments. This is why
the main purpose of a hedge fund is to maximize profits and returns. These hedge
fund managers employ a number of complex strategies to generate high returns on
investments. The most common strategies are classified into event-driven
strategies, relative value strategies, macro strategies and equity hedge
strategies.
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