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Investor Education > Managed Funds > Hedge Funds

HEDGE FUNDS

Hedge funds have been around for over 50 years but have only recently become accessible to the average investor.

What is a Hedge Fund?
A fund managed by an investment professional that invests in shares, fixed interest and other instruments with the intention of profiting in rising and falling markets. Hedge funds seek to make investment returns irrespective of whether markets are rising or falling.

The first hedge fund was a US long-short fund and was started in 1949 by an Australian named Alfred Winslow Jones. In the 70’s, 80’s and 90’s hedge funds slowly built recognition and have become an important asset class for pension funds. There are now 6,000-8,000 funds worldwide with industry assets in excess of over $500 Billion US.

How do Hedge Funds work?
The result (return) of a hedge fund depends primarily on the skill of the manager. Usually the manager has a sizeable personal stake in the fund so their interests are aligned with the interests of their investors.

Hedge fund managers use a variety of techniques to generate investment returns that are often independent of the general market such as short-selling, derivatives as well as leverage. The goal of the fund is total return and risk is defined as "loss of capital" as compared with equity funds that define risk as the return versus a particular index or benchmark.

Recently there have been a number of hedge fund "fund of fund" products introduced for retail investors allowing individuals to access hedge fund managers for amounts as little as $1,000 or $5,000.

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