What is a “Hedge Fund”?
A hedge fund is a private pool of capital which may invest in various strategies (subject to its Charter) and is exempt from regulation due to certain SEC exemptions. Technically, Patton Investments is not a hedge fund but rather an investment advisory firm which may on occasion or in the future manage one or several hedge fund(s).
Hedge funds are investment vehicles that explicitly pursue absolute returns on their underlying investments. The appellation “Absolute Return Fund” would be more accurate, not least as not all hedge funds maintain an explicit hedge on their portfolio of investments. However the “Hedge Fund” definition has come to incorporate any absolute return fund investing within the financial markets (stocks, bonds, commodities, currencies, derivatives, etc) and/or applying non-traditional portfolio management techniques including, but not restricted to, shorting, leveraging, arbitrage, swaps, etc. Hedge funds can invest in any number of strategies and they are perhaps most readily identifiable by their structure, which is typically a limited partnership (the manager acting as the general partner and investors acting as the limited partners) with performance related fees, high minimum investment requirements and restrictions on types of investor, entry and exit periods.
I’m tired of all these fancy definitions–a hedge fund is nothing more than a company that implements various investment strategies, some of which may be considered speculative. Unlike archaic mutual funds, hedge funds are free to adapt their investment strategies to changing market conditions and take advantage of any opportunities in pursuit of profits. For the right to enjoy such investment freedom, hedge funds sacrifice freedom of speech because the SEC has deemed non-wealthy investors unworthy of learning about such “speculative” strategies.
A hedge fund is a private investment fund open only to sophisticated investors. Depending on the type of the fund, the investor would need to fulfill the requirement of “accredited investor” or “qualified client.” In most states, hedge funds are not required to register with the Securities and Exchange Commission and are therefore often regarded as “secretive” or “unregulated.” There are an estimated 10,000+ hedge funds in the U.S. today. Hedge Fund assets are estimated to manage almost $3 trillion in assets, but because all hedge fund data is self-reported, the exact number is unknown. Estimates of new assets flowing into hedge funds exceed $25 billion on average for the last few years. The term “hedge” is used loosely and does not always mean that a hedging technique is being used. In fact, hedge funds use a wide array of strategies, and sometimes are not “hedged” against the market at all. Hedge funds are usually structured as partnerships, with the general partner being the portfol
Isaac Ruiz-Carus Varun Bhat Emily Marriott 1.0 Useful Terms [derived from Blacks Law Dictionary, 7th ed.] • Arbitrage: the simultaneous buying and selling of securities in different markets with the purpose of profiting from the price difference in the markets. • Derivative: a volatile financial instrument whose value depends on or is derived from the performance of a secondary source such as an underlying bond or currency. • Hedge: making arrangements to safeguard against loss on an investment (can involve various techniques) • Leverage: the use of credit (such as margin) to improve ones speculative ability and to increase the rate of return on an investment • Short Sale: a sale of a security that the seller doesnt own (if the seller does own the security she is said to be in a long position), and that the seller must borrow. Usually, the technique is employed when prices drop. If the price of the security does drop, the seller can make a profit on the price of the shares sold versus
