What is a hedge fund?

What is a hedge fund?

A hedge fund is an alternative investment vehicle in which investors contributions are pooled and invested on their behalf in a portfolio of securities, commodity futures contracts or other assets. Hedge funds work either as private investment partnerships or offshore investment corporations and are not required to be registered with the securities markets regulator and are therefore not subject to the reporting requirements.

Investors in Hedge Funds are usually of high net-worth individuals or sophisticated investors who can generally redeem investments on a quarterly, semi-annual, or annual basis.

As hedge funds are private investment vehicles, they can do more or less whatever they like so long as they are upfront about their strategy to potential investors. The investment strategy is normally outlined in a prospectus for investors to read before they invest. While this degree of investment can prove highly risky, it also affords hedge funds a huge amount of flexibility.

Another simple way of defining a hedge fund is… They will literally invest money in anything that they believe will make a profit as their main focus is trying to deliver a positive return whatever the circumstances, even if it means predicting the collapse of a company or industry.

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