Introduction To Hedge Funds
hedge funds get a lot of attention from wall street. although the assets that's under management of hedge funds are only a small percentage of the global asset management pool, these funds use leverage to magnify their results. so, they have a significant impact in equity and derivative markets. a hedge fund is a private investment fund that markets itself almost exclusively to wealthy investors. because the middle and lower classes are generally not allowed to invest in hedge funds due to financial limits, the sec has historically allowed these funds to operate with much less regulatory oversight. hedge funds used to be managed and marketed with an idea that they will hedge investor's risk. investors will protect it from downturns in the market, while seeing ? returns in better times. that definition no longer applies and hedge funds are now better understood as aggressive risk-seeking investment funds that typically use leverage to magnify returns. with the promise of higher returns, hedge funds charge their investors higher fees that cover the operational costs of the fund. however, in addition to operational costs, fund managers are also entitled to performance fees. if the fund outperforms, the fund manager can claim a percentage of the profits as a fee. hedge funds can employ valuable strategies and target many markets. global macro and directional hedge funds typically get the most attention, as they will often make large bets on individual securities or sectors. event driven hedge funds concern situations in which an investment opportunity is associated with an event such as a bankruptcy. relative value funds typically profit from discrepancies between securities. like mutual funds, hedge funds offer a flavor to match every investor's tastes.