Define a Hedge Fund?IntroductionIf asked to define a hedge fund most people would describe it as a highly speculative investment vehicle used by smart and or crafty money managers. This perception stems from high profile collapses of hedge funds in the late 90's and early 2000. Popular funds,namely Long Term Capital Management, Tiger Funds and Quantum Fund painted a very negative picture for the hedge fund industry. Adding to the off-putting news of hedge funds, in late 2008 as the global financial crisis began (stemming from mortgage backed securities), hedge funds were at the end of the finger pointing as governments searched for someone to blame. All of the negative media attention has portrayed hedge funds in a bad light. Hedge Fund DefinedSo, if the true meaning of a hedge fund has been skewed, how do we define a hedge fund? Today a hedge fund can be defined as many different things to different people. In its truest term, a hedge fund is a lightly regulated investment partnership that specializes in hedging and arbitrage strategies to generate higher returns for a defined level of risk compared to traditional investment methods.Hedge funds are not required to register with major regulatory bodies such as the: U.S. Securities and Exchange Commission (SEC), National Association of Securities Dealers (NASD) or Commodity Futures Trading Commission. This lack of regulatory oversight is used advantageously by hedge funds by implementing investment strategies that include a broader range of assets other than stocks or bonds. Unlike mutual, pension or endowment funds, hedge funds invest in other assets such as currencies, commodity options, exchange-traded funds (ETF), fixed income securities, futures contracts, over the counter derivatives and other non-securities investments. In order to remain unregulated hedge funds are restricted to accepting money from qualified or accredited investors only. In light of the global financial crisis, many goverments world wide are calling for oversight or regulation of hedge funds in many countries.
|
