Hedge Fund Definition

A hedge fund is a portfolio of investments which pools the capital of a number of investors, which it can then use to buy securities and other instruments. Hedge funds are managed by a professional team, and are often established as limited partnerships or limited liability companies (LLCs). Unlike mutual funds, hedge funds do not have caps on the amount of leverage they can use. They invest largely in liquid assets, distinguishing them from private equity firms.

Hedge funds are only available to distinguished investors or institutions; they are not sold to the general public. They tend to use advanced investment strategies and an aggressive strategy to generate the maximum returns possible. This means long, short, derivative, and leveraged positions are often used, in order to generate returns whether the market is rising or falling (known as ‘absolute returns’).

Example Of A Hedge Fund: Bridgewater Capital

Perhaps the most famous example of a hedge fund is Ray Dalio’s Bridgewater Capital, which currently manages approximately $150 billion in global investments for a variety of institutions and investors, including foreign governments and central banks, corporate and public pension funds, university endowments and charitable foundations. The fund employs nearly 1,400 people.

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