FinLyneDefinition
Hedge funds are pooled investment vehicles that employ diverse strategies — including leverage, derivatives, and short selling — to generate returns for accredited investors.
Explanation
Unlike mutual funds, hedge funds face lighter regulation and can take long and short positions, use leverage, and invest across asset classes. They typically charge a '2 and 20' fee structure (2% management fee + 20% performance fee). Strategies range from long/short equity to global macro, event-driven, and quantitative approaches.
Example
Bridgewater Associates, the world's largest hedge fund, manages over $120B using a 'Pure Alpha' strategy that seeks uncorrelated returns across global markets through macroeconomic analysis.