what is hedge funds

A hedge fund is a private investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment funds & which pays a performance fee to its investment manager. Although each fund will have its own strategy which determines the type of investments & the methods of investment it undertakes, hedge funds as a class invest in a broad range of investments, from shares, debt & commodities to works of art.

As the name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling. However, the term ''hedge fund'' has come to be applied to many funds that do not actually hedge their investments, & in particular to funds using short selling & other ''hedging'' methods to increase rather than reduce risk, with the expectation of increasing return.

Hedge funds r typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures & the liquidity of investments in the fund. A hedge fund will nevertheless voluntarily limit the scope of its activities via its contractual arrangements with the individual investors in order to give them some certainty surrounding the specific investments that will be invested by the hedge fund itself.

The assets under management of a hedge fund can run into many billions of dollars, & this will usually be multiplied by leverage, meaning that their influence over markets is substantial. Hedge funds dominate certain specialty markets such as trading within derivatives with high-yield ratings & distressed debt