How do Hedge Funds differ from mutual funds?
Hedge funds are similar to mutual funds in that they both are pooled investment vehicles that accept investors’ money and generally invest it on a collective basis. Hedge funds differ significantly from mutual funds, however, because hedge funds are not required to register under the Investment Company Act of 1940. They are not required to register because they generally only accept financially accredited investors and do not publicly offer their securities. In addition, some, but not all, types of hedge funds are limited to no more than 100 investors. This freedom from regulation permits hedge funds to engage in leverage and other sophisticated investment techniques to a much greater extent than mutual funds. Although hedge funds are not subject to registration and all of the regulations that apply to mutual funds, hedge funds are subject to the antifraud provisions of the federal securities laws.
