Over the last 10 years, the media has become obsessed with the emergence and growth of the hedge fund market. You take a look in the paper, and hedge funds are making the top headlines. You turn on CNBC, and they’re discussing hedge funds and institutional investing.  With this constant overload of information, you can’t help but ask, “What’s the buzz all about”?

Though almost everyone has heard of the term “hedge fund”, unfortunately, most people don’t REALLY know what it means?  To help spread the truth and clear up any misconceptions, we decided to explain this topic in detail.

A hedge fund is a private investment fund that invests in various assets such as securities, commodities, currencies, and derivatives, all on behalf of its investors. Hedge funds are usually open to a limited range of investors, and some funds can have Billions under management. Typically, the investor pays a performance fee to the hedge fund manager, which is typically their main source of compensation.  For more information on fees, click on Fees for Hedge Fund Investments.

Despite the common misconception, hedge funds are NOT all the same. Each hedge fund has its own investment strategy, and in fact, some funds can be as different as night and day.  For example, there are some hedge funds that ONLY short-sell equity markets after news releases.  On the other hand, there are some hedge funds that ONLY invest in commodities or eco-friendly stocks.  As you can see, hedge funds can be different in every area except one, their goal to profit.

As you may know, hedge funds typically produce higher yields than traditional investments. This is because most hedge funds are private, which allows them to invest in almost any market condition.  For example, hedge funds can legally short-sell when the market is going down, and many mutual funds can not.  This allows hedge fund managers to profit in markets that are growing AND declining, greatly increasing their potential yields.

Though profit is everyone’s goal, negative media attention has lead many to question the economic impact of hedge funds. The real truth is, hedge funds are a tool of the ultra-wealthy, and they play an important role in the world economy.  Without hedge funds, many businesses would NEVER be funded and our investment markets would be far more illiquid. Unfortunately, since hedge funds can produce far higher yields than the rest of the market, they will continue to be a scapegoat for years to come.

Now that you understand the characteristics of a hedge fund, it may be time to dig a little deeper. To do so, scroll down and take a look at the list of Related Articles. Also, if you would like to watch a good video, click on “Billionaire Hedge Fund Managers”.  It is an EYE-OPENING presentation which demonstrates the most profitable investment structure in the world, the hedge fund.

InsideTrade LLC Staff
(412) 235-2855