What’s the difference between private equity funds and hedge funds?
Private equity seeks to create value over the long-term; hedge funds typically have a much shorter time horizon. Private equity funds typically buy and own whole companies and help them realize earnings growth over time. Private equity investors succeed only when the companies they own succeed. PE funds typically own companies in their portfolios for about five years, though they sometimes exit the investment sooner. Hedge funds are pools of capital that usually invest in stocks, bonds, or commodities. Typically, they do not purchase a controlling interest in a company (although some are now doing so). Rather, they try to capitalize on short-term gains, using complicated trading strategies involving options and other derivative financial instruments. In some cases, hedge funds bet against the shares of companies they don’t own, hoping to profit from a falling price. The typical holding period for a hedge fund investment is weeks or months, not years.
