A hedge fund company is an investment fund company that charges performance fee and generally opens to only a limited range of investors. A hedge fund company uses high risk techniques like borrowing money and selling it short in a wish to make extraordinary gain.
Just like mutual funds, hedge funds also includes collecting the fund from various sources and then a professional decides on how to invest it in the market and here the difference lies from that of a mutual fund. The hedge funds are generally unregulated funds and there�s no set of rules that a hedge funding company has to follow unlike mutual fund companies.
Because according to the US law, to invest in hedge funds the investors need to qualify in some criteria like the investors have to have a huge amount of knowledge in investment, should have a net worth of at least $1 million and should also have certain amount of income per year.
There can be various kinds of investments in the hedge funding and there�s no limitation to that. The hedge funding investment professionals generally invest in various markets and the strategies that follow may be unconventional. They can either hold the long and short positions or use the derivatives or leverages.
According to the experts, the profits can be made in any environment and this is the reason the managers try to hedge or raise the risk to gain high profit. Depending on the speculative investments in the hedge funds, the risks involved here is also high.
The hedge fund managers receive a performance fee and management fee for the entire managing of the hedge fund and generally the management fee is 1%-2% of the total fund asset while the performance fee is generally 20% of the annual profit.
Selling short stocks and buying long stocks is one of the techniques that the hedge fund companies apply while investing. The hedge fund also guides investors to make profit in high risk investments. Leverage is the technique that is taken up by the hedge funds and this involves the borrowed money from the bank is combined with the capital from a company�s investment. The hedge funding also includes fees and this is called the incentive fee. The incentive fee in hedge fund depends on the portion the client�s profit instead of the percentage. The incentive fee in hedge fund is invested again in order to gain more profit.
Last Updated on : 22th July 2013