A hedge fund is a type of private investment partnership that generally invests in a diverse range of securities and typically has more flexible investment strategies than mutual funds.
A fund may employ a single strategy or multiple strategies for flexibility, risk management, or diversification. The hedge fund’s prospectus, also known as an offering memorandum, offers potential investors information about key aspects of the fund, including the fund’s investment strategy, investment type, and leverage limit.
Many hedge funds seek to profit by using leverage (borrowing to increase investment exposure as well as risk), short-selling, and other speculative investment practices.
A typical hedge fund fee arrangement is 2% per year of the assets under management, plus a performance fee of 20% of the funds profit over a stated benchmark.
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