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Hedge Fund Definition

What is a Hedge Fund?

A Brief Explanation of a Hedge Fund | Definition

A hedge fund is a privately managed type of investment fund. Hedge funds vary in size, location, and strategy and are subjected to different regulations in different countries. Common strategies include global macro, directional, event-driven, and relative value. In the United States, hedge fund participation is limited to accredited investors as defined by the Securities and Exchange Commission (SEC). A hedge fund will pool investments from investors, or limited partners, and purchase equity in companies. A hedge fund differs from a private equity fund in that a hedge fund normally does not take a direct management role in its investments. However, sometimes activist managers of hedge funds will attempt to gain influence in a company through board seats or acquiring more equity. Hedge fund investments are typically for shorter periods of time than private equity. A hedge fund manager will typically charge a management fee (a percentage of assets under management) and a performance fee (a percentage of the gains). Notable hedge funds include Paulson & Co. and BlackRock Advisors.

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