Intro to Business: Help and ReviewBusiness Courses

What is a Mutual Fund? – Definition, Types, Advantages & Examples

What Is a Hedge Fund? – Definition, Structure & Examples

Quiz & Worksheet – Hedge Fund Characteristics & Structure

You must create an account to continuewatching

As a member, youll also get unlimited access to over 75,000 lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized coaching to help you succeed.

Log in or sign up to add thislesson to a Custom Course.

What is a Forward Contract? – Definition & Examples

What Is Mark-to-Market? – Definition, Calculation & Examples

What is a Mutual Fund? – Definition, Types, Advantages & Examples

What Is an Option Contract? – Example & Definition

What Is Money Laundering? – Definition, Techniques & Examples

What is Revenue Recognition? – Principles, Process & Examples

Capital Asset Pricing Model (CAPM): Definition, Formula, Advantages & Example

Accounts Receivable: Definition, Process & Examples

What is Bank Reconciliation? – Definition, Purpose, Process & Examples

Government Securities: Definition, Types & Examples

What Is a Bill of Exchange? – Definition & Sample

What Is Financial Reporting? – Purpose, Statement Examples & Analysis

How to Calculate the Return on Equity: Definition, Formula & Example

Accrued Expenses & Revenues: Definition & Examples

What is a Stock? – Definition, Types & Examples

What Are Mergers and Acquisitions? – Definition & Examples

What Are Commodities? – Definition, Types & Examples

Hospitality 105: Introduction to the Tourism & Travel Industry

Business 121: Introduction to Entrepreneurship

Internet & Social Media Marketing: Help & Review

UExcel Business Ethics: Study Guide & Test Prep

UExcel Organizational Behavior: Study Guide & Test Prep

Introduction to Macroeconomics: Help and Review

College Macroeconomics: Homework Help Resource

Monica has taught college-level courses in Tourism, HR and Adult Education. She has a Masters in Education and is three years into a PhD.

In this lesson, we will discuss the nature of hedge funds, illustrate investment strategies, and reveal their appeal and controversy. Well also make comparisons between a hedge fund and a mutual fund and present the overall structure of a hedge fund.

When planning for our future, common advice is to invest, particularly in mutual funds.Mutual fundsare very attractive for an individual. They diversify your portfolio because money is pooled into one fund that buys a wide variety of stocks, bonds, and other securities. Having a manager do the hard work for you is another incentive. Hedge funds have similar advantages, only the benefits are supersized; so if youre wondering why no one has recommended hedge funds as an investment, its because hedge funds are for the super wealthy.

Like a mutual fund, ahedge fundis a managed, pooled fund that uses different strategies to invest. The fund could invest in stocks, bonds, commodities, or real estate. Unlike a mutual fund, the hedge fund investors must beaccredited. In other words, the investors must have a minimum annual income (the amount depends on each country), have a net worth of at least a million dollars, and have significant knowledge of investments. In the hedge fund world, these investors are known as sophisticated investors.

Hedge funds are appealing because they are hardly regulated compared to other forms of investment, which is why you may have heard about them in the news. Do you remember Bernie Madoff? From the 1990s to 2008, he stole $50 billion from Ascot Partners, the limited partner firm he managed. This is a big deal because alimited partnershipis the company (or hedge fund) that pools the funds of several investors. So essentially, he stole from many investors who trusted him to manage the hedge fund. Well talk more about limited partner firms in the hedge fund structure in a bit.

There are hardly any restrictions on taxes in a hedge fund, either. You may have heard politicians complaining about how hedge fund managers make billions of dollars every year but pay less tax than nurses and truck drivers in the United States. In other words, hedge fund managers get a tax break because a portion of their income is based on the funds performance. The funds performance is called thecarried interest. There are lax laws on carried interest income.

With limited regulations, some investment strategies are less traditional, so there are more options on how to invest, and the risks are lower. An example of lower risks is hedge fund structuring. Hedge funds are structured on flexibility, while other funds are structured on a fixed income. As a result, hedge funds have a higherreturn on investment (ROI)than other forms of investment.

Lets quickly recap some similarities and differences between mutual funds and hedge funds.

Both types of funds are used to diversify a portfolio, and in both, a pooled fund invests in a variety of areas such as commodities, bonds, stocks, and derivatives. However, a mutual fund is heavily regulated, while a hedge fund is not. Anyone can invest in a mutual fund, while hedge funds are for so-called sophisticated investors. Finally, the managers of mutual funds are paid regardless of performance, while the managers of hedge funds are paid based on performance.

Lets look here at the structure of a hedge fund.

Alimited partneris a company that holds the funds of accredited investors. Ageneral partneris the hedge fund owner, and his or her company that manages the funds. The general partner grows the fund by making different investments. The general partner also makes money based on management fees and fund performance. Investors make money, orROI, off of performance.

Now lets look at some examples of hedge fund strategies.

, which means buying long stocks, or shares that are expected to increase in value, and selling short stocks, or shares that are expected to decrease in value.

. This is investing in emerging markets (developing countries) that are predicted to perform well in the global economy.

, or when a fund will invest on the prediction that two companies will or will not merge.

To recap, ahedge fundis a limited-partner company managed by a general partner, also known as a hedge fund manager. It uses traditional and unconventional methods of investing for significant growth. Investors of a hedge fund must beaccredited, meaning they must have a minimum annual income, a net worth of over a million, and significant knowledge of investing.

To unlock this lesson you must be a Member.Create your account

Visit the Intro to Business: Help and Review page to learn more.Earning CreditEarning College Credit

Did you know We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school thats right for you.

Get the unbiased info you need to find the right school.

South Dakota (SD): Overview of South Dakotas Educational System

Summary of Oklahoma Colleges, Universities, & Career Schools

Rhode Island (RI): Colleges, Trade Schools, and Universities Overview

New Jersey (NJ): Trade Schools, Colleges, and Universities

Texas (TX): Colleges, Universities, and Career Schools

Overview of Pennsylvanias Higher Education & Career Education

Summary of Oregon Universities, Colleges, & Career Education

Chapman University: Academics, Admissions & Tuition Info

Tennessee (TN): Overview of Tennessees Colleges and Universities

Cisco Engineer: Job Description & Career Info

Entrepreneurship Degree Programs in Fremont, CA

Legal Receptionist Job Description Duties and Salary

Salary and Career Info for Web Programming Professionals

Engineer – Civil: Overview of Civil Engineering Programs

The Dynamic Business Environment: Help and Review

Business Morality & Code of Conduct: Help and Review

Entrepreneurship and Small Business: Help and Review

Managing and Leading in Business: Help and Review

Leadership Styles in Business: Help and Review

Business Production and Operations: Help and Review

Workplace Productivity & Motivation: Help and Review

Managing the Employer-Worker Relationship: Help and Review

Product Development and Retailing: Help and Review

Product Distribution & Supply Chain Management: Help and Review

Pricing Strategy in Marketing: Help and Review

Product Promotion in Business: Help and Review

Implications of Information Technology: Help and Review

Financial Management in Business: Help and Review

Ch 25. Securities Markets and Business: Help and…

Return on Investment: Definition, Formula & Example

What Are Commodities? – Definition, Types & Examples

What is a Foreign Investment? – Definition & Examples

What Is a Hedge Fund? – Definition, Structure & Examples

What is a Mutual Fund? – Definition, Types, Advantages & Examples

What is a Private Investment? – Definition & Overview

Capital Requirements: Definition & Explanation

Bonds: Types, Characteristics and Issuing Procedures

Investment Opportunities in Mutual Funds and Exchange-Traded Funds

Securities Markets and Business: Help and Review

Money and Financial Institutions: Help and Review

Ethical Behavior & Social Responsibility in Small Business

What Is a Hedge Fund? – Definition, Structure & Examples

The Leaders Role in Creating Team Goals

Effective Cross-Cultural Communication in Business

Practical Application: Motivational Theories & Strategies Infographic

Practical Application: Characteristics of Global Business Managers

Practical Application: Marketing Plan Template

Practical Application: Long-Term Organizational Planning

Practical Application: Identifying Sources of Ethical Standards in Business

Quiz & Worksheet – Characteristics of Behavioral Targeting

Quiz & Worksheet – Customer Needs & The Marketplace

Quiz & Worksheet – Business-to-Business E-Commerce

Career, Life, & Technical Skills Lesson Plans

Using File-Carving & Scalpel Techniques to Recover Android Device Data

A Midsummer Nights Dream Fairies Role & Analysis: Peaseblossom, Cobweb, Moth & Mustardseed

Quiz & Worksheet – Assessing Nutritional & GI Status

Quiz & Worksheet – Achievements of President Jackson

Quiz & Worksheet – State & Federal Rights in the Civil War

Analytical & Non-Euclidean Geometry Flashcards

Flashcards – Measurement & Experimental Design

Middle School Science Worksheets and Printables

NGSS Next Generation Science Standards Guide for Teachers

High School Algebra I: Homework Help Resource

Common Core ELA – Literature Grades 9-10: Standards

Diagnosing & Treating Chest & Stomach Injuries

Quiz & Worksheet – Urinary System Diseases & Disorders

Quiz & Worksheet – Using Q&A for Reading Comprehension

Quiz & Worksheet – Hypnopaedia in Brave World: Phrases & Analysis

Yeast Fermentation: Using Fermentation to Make Alcohol

How Organizations Can Leverage Employee Education Benefits to Attract and Retain Top Talent

Do Homeschoolers Have to take Standardized Tests?

Enrolling in a course lets you earn progress by passing quizzes and exams.

© copyright 2003-2019 Study.com. All other trademarks and copyrights are the property of their respective owners. All rights reserved.

My child is studying for a credit granting exam

-1 action=/academy/plans.html role=form form__teacher-subject class=item data-helper-text=1 data-show-reactivate=1 autocomplete=on data-cname=fields_teacher_subject data-track-visible test-id=fields_teacher_subject name=forms.teacherSubjectForm ng-submit=$event.preventDefault(); validateDropdownForm(forms.teacherSubjectForm, forms.teacherSubjectForm.teacherSubject)

1 ng-bind=(cart.product.billingIntervalCount) +

Study.com video lessons have helped over30 millionstudents.

I learned more in10 minutesthan 1 month of chemistry classes

I aced the CLEP exam and earned3 college credits!

Over65 million usershave prepared fordisplayNameByProductKey[registrationData.product cocoon] and otherexams on

The videos have changed the way I teach! The videos on Study.com accomplish in5 minuteswhat would take me an entire class.

It provides a quick and engaging way to cover material needed to understand readings we are covering in class.

It provides a quick and engaging way to cover material needed to understand readings we are covering in class.

A teacher friend recommended Study.com for social studies. I enjoy assigning the videos to my students. The videos are short, to the point, and the quiz allows me to test their knowledge on whatever subject in social studies I am teaching at the time.

Every time I have searched for a lesson, there has been a perfect match to my needs as a middle school teacher of science, and algebra.

Your lessons are very well developed, especially the videos that use analogies for scientific phenomena. Great way to memorize science concepts.

I love the way the lessons are laid out in small chunks with quizzes to make sure you understand a concept before moving on. Excellent!

I am a 7th-grade teacher and often use it for language arts and world history. The students find it quite engaging. On a professional note, it has helped me pass 2 out of the for 4 Single Subject CSET English Exams! Now I am using it to help me pass the last 2 subtest exams.

As a math/science tutor I find these lessons extremely helpful when introducing concepts to my students or reinforcing what they have been taught.

I like that students can retake quizzes until they achieve a perfect score. I also like the ability to create guided note templates from the transcripts of each video lesson.

Over65 million usershave prepared fordisplayNameByProductKey[registrationData.product cocoon] and otherexams on

Over65 million usershave prepared fordisplayNameByProductKey[registrationData.product cocoon] and otherexams on