A hedge fund is a loosely regulated, privately organised, pooled investment vehicle. Hedge funds fall under the category of alternative investing as opposed to mainstream investing which refers to investments that everyone can invest in.
Typically, hedge funds are limited to 500 investors with a high minimum investment and are thus not available to the public. In many cases, they will invest across multiple asset classes in different markets and bet either on the movement of a security or the differential between the prices of related securities. They rely highly on the skill of their analysts rather than on market conditions.
These days most hedge funds trade actively, take aggressive long and/or short positions and can be highly levered. The value proposition of a Hedge Fund is that it provides its investors with a return that is not correlated with the market. Hedge Funds aim to provide an absolute return regardless of market movement, unlike mutual funds, which try to beat their market benchmark. For that, they typically charge their investors 2% of assets under management as well as 20% of the profits.
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