According to wikipedia, a hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives.
Financial regulators generally restrict hedge fund marketing to institutional investors, high-net-worth individuals, and others who are considered sufficiently sophisticated.
Hedge funds are considered alternative investments.
Their ability to use leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, commonly known as mutual funds and ETFs.
They are also considered distinct from private equity funds and other similar closed-end funds as hedge funds generally invest in relatively liquid assets and are usually open-ended.
This means they typically allow investors to invest and withdraw capital periodically based on the fund’s net asset value, whereas private-equity funds generally invest in illiquid assets and only return capital after a number of years.
However, other than a fund’s regulatory status, there are no formal or fixed definitions of fund types, and so there are different views of what can constitute a “hedge fund.”
The world’s largest hedge fund is Bridgewater Associates, an American investment management firm founded by Ray Dalio in 1975.
In this video, Dalio gives his opinion of hedge fund and why he likes it.
Source: Finance Jane.
