A Hedge Fund is a portfolio of investments hoping to reduce the risk of investment and expanding the maximum return an investment could bring. A firm instead of individuals usually manages it. Usually, hedge funds are only offered to a number of investors and requires a large amount of initial minimum investment, it’s usually 1 million dollars in the USA. Adding on, investors are usually required to keep their initial investment in the fund for at least a year.
Hedging is usually the meaning of attempting to reduce risk of an investment would bring. However, nowadays hedge funds use a lot of different techniques to invest. As a result, it would be inaccurate to state that hedge funds just try to invest by reducing risks. These days, hedge funds will invest according to speculations and these are much more riskier than other investments so hedge funds has lost its nature as reducing risks but can now be carrying more risks than the overall market.
There are a number of characteristics of a hedge fund that differs it from mutual funds. Firstly, hedge funds unlike mutual funds aren’t regulated. They are regulated to an extent as such as cant advertise to the general public and the number of investors they can recruit but they are not responsible to report their status to the general public or any authorities. How hedge funds invest and according to what reason they made a certain decision to invest is not required to be revealed to the public and usually confidentially agreement are signed between the firm and the customers. As a result, hedge funds aren’t very transparent.
It should also be mentioned that, customers usually invest their money in hedge funds according to the person that will be handling their money and not entirely because of the firm. That’s why when a hedge fund manager moves to another firm or strikes out on their own; the customer is usually willing to transfer their money with them.
Hedge funds could reduce risk of an...
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