What is a Hedge Fund?

A hedge fund is a fund that aggressively manages a portfolio and uses more advanced forms of investing then the normal mutual funds. They can use long and short positions as well as buying on leverage.

The first of the hedge funds was first created by Alfred W. Jones in 1949. They grow and have become very popular in the 90s, and onto the 2000s.

A hedge fund implies that it is a way to hedge risk because they can take advantages of both long and short positions. But this may not be true. These funds seek higher returns and can come with higher risks as well.

Because of that not just anyone can buy one of these funds. To be eligible you must meet a specific minimum income level and have a net worth of over $1 million dollars. They are also not regulated because only “sophisticated investors” can invest in them.

Fees

They normally come with both a maintenance fee and a performance fee. The maintenance fee is normally between 1-4% and the performance fee is normally between 20-45%.

Pros and Cons of The Funds

The advantages of these funds is that they allow you to make money in both bull and bear markets, if you choose well managed funds that is. The disadvantages of these funds is that they often come with much higher risk and they do tend to charge a lot for their services.

That is why it is a good idea to look at how a fund has done in the past to see how it is likely to do in the future. Even a fund that charges a lot of money to invest into it may still be worth investing into if they tend to perform well enough.

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