Hedge Fund

A pool of liquidity that is allowed to use aggressive techniques prohibited in mutual funds and other funds. That is, hedge funds often engage in short selling, arbitrage, and leverage trading, among others. Hedge funds are exempt from many regulatory requirements; for example, they are often exempt from registration with the SEC. Generally speaking, hedge funds are set up as partnerships into which an investor may buy for a minimum investment, usually anywhere from $250,000 to over $1,000,000. As a result, most hedge fund investors are institutional investors and high net-worth individuals. In order to avoid as many regulations as possible, most hedge funds are limited to 100 investors or less. Like mutual funds, they charge management fees, but, unlike other funds, they often take a percentage of the profits from investors. Hedge funds tend to be illiquid as they often require investors to maintain their investment for at least one year.