Hedge fund

Hedge funds are investment pools that often deal in highly liquid assets and use sophisticated strategies for trading, portfolio development, and risk management such short selling, leverage, and derivatives in an effort to outperform the market. Marketing for hedge funds is often limited to institutional investors, high-net-worth individuals, and accredited investors due to restrictions imposed by financial authorities.

One kind of "alternative" investing is hedge funds. The capacity to utilise leverage and more advanced trading approaches sets them apart from typical investment funds like mutual funds and exchange-traded funds (ETFs). Hedge funds are unique from private equity funds and other comparable closed-end funds since they are open-ended and often invest in liquid assets. Unlike private-equity funds, which often invest in illiquid assets and only return cash after a number of years, mutual funds enable investors to deposit and withdraw capital on a periodic basis depending on the fund's net asset value. There are several conceptions of what constitutes a "hedge fund," since there are no official or defined definitions of fund types outside of a fund's legal status.

Following the financial crisis of 2007-2008, regulations were passed in the United States and Europe with the aim of increasing government oversight of hedge funds and eliminating certain regulatory gaps. Hedge funds are not subject to the many restrictions applicable to regulated funds. Although most contemporary hedge funds are able to use a broad range of financial instruments and risk management approaches, they may nonetheless have vastly diverse strategies, risk profiles, volatility profiles, and predicted return profiles. Hedge funds often use investing methods that seek a favourable return on investment in either a rising or declining market. ("absolute return"). The predicted returns of certain hedge fund strategies are less volatile than those of retail funds with substantial exposure to stock markets due to the use of hedging methods, but hedge funds are still considered hazardous investments.

Management fees (generally 2% per year of the fund's NAV) and performance fees (normally 20% of the growth in the fund's NAV over the year) are the standard forms of compensation for a hedge fund's investment manager. Hedge funds have been around for decades, and they're just becoming more common. As of 2021, their assets under administration would amount to roughly $3.8 trillion, making them a significant part of the asset management market. Assets managed by hedge fund managers may reach several billion dollars. (AUM).