All About Hedge Funds

Below are information on all about hedge funds. All about hedge funds info below comprises of frequently asked questions (FAQ) about hedge funds. All about hedge funds information and facts start with basic questions about hedge funds and hedge fund investing such as what is a hedge fund and why should you invest in hedge funds. These questions about hedge funds aim to explain all about hedge funds to anyone interested in investing in hedge funds or just learning how to pick the best hedge funds.

What is a hedge fund?

A Hedge Fund is an investment partnership that seeks above average returns through active portfolio management and whose manager/sponsor/general partner's primary compensation is a percentage of the profits. Because hedge funds are private limited partnerships, and may accept higher risks than traditional investment vehicles, the SEC limits hedge funds to sophisticated accredited investors.

Why should you invest in hedge funds?

Basically, some hedge funds have outperformed both mutual funds and the broad market indices. A key factor to their success is that hedge funds are not dependent on interest rate stability or a favorable stock market environment. In fact, the inherent volatility caused by economic uncertainty can present hedge funds with profit opportunities. Many managers trade from both the long and short side of markets enabling them to be profitable when more conventional measures of market performance experience negative returns. Also, most hedge fund managers are primarily compensated by providing their investors with superior performance, creating an alliance of interests not always available in other investments.

Do hedge funds outperform the market?

The performance of hedge funds as a result of their flexible and opportunistic investment style has been quite extraordinary. The median manager return for each of the hedge fund categories has exceeded the S&P 500 and the average (long only) traditional equity manager from 1989 to June 1994. The median opportunistic hedge fund manager has nearly doubled the return of the S&P 500 over this period. In viewing investment strategies in light of their risks hedge funds are quite attractive and the inclusion of hedge funds within traditional asset classes enhances portfolio diversification.

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