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December 19, 2005
A Beginner’s Guide to Hedge Funds
Hedge funds are one of the most awed investment strategies to the common retail investors. Traditionally reserved only for ultra-rich investors, the often hidden investment strategy of hedge funds is still a mystery. To understand the intricacies of hedge funds, we first need to understand what hedge funds are. In simple words, hedge funds are an aggressively managed portfolio of investments, which use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets. The aim is to generate high returns.
To draw up an understanding from a structural perspective, hedge funds are usually established as private investment partnerships, which are open to a limited number of investors and further require a very large initial amount of investment. On a general note, hedge fund investments are not liquid, not at least in the short run of up to a year. As most hedge funds require a minimum lock-in period of one year. One more interesting fact about the hedge funds is that they are organized as private partnerships and often located offshore. This is done primarily to save on taxes and to work around regulatory issues.
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