A hedge fund company is an investment structure pool by limited investor partners. It is operated by a general manager. This manager has common goals that aim to minimize risks and maximize returns. Although not exclusively, investors or institutions with connections to the professional manager can hedge funds. Due to its nature, a hedge fund company is only open to qualified investors. Not all hedge funds are required to register with the Securities Exchange Commission (SEC). But, big hedge fund firms and several other exceptions should register. The main thing that distinguishes hedge funds from other types of investments is that they are only available to investors who meet the capital requirements.
What are the structures of hedge funds?
There are two ways to create a hedge fund. The first is a limited liability company (LLC). The second is as a limited partnership (LP). The former is a corporate structure. So here, limited partners or investors are held liable. The latter is a structure where the partners are only responsible for the money that they personally invest.
Who runs a hedge fund?
A manager runs a hedge fund company. The manager invests the money into various assets to accomplish the goals of the fund, regardless of the structure. Different hedge funds have varying goals. For example, hedge funds specialising in long-only equities buy common stock and do not sell short. Other hedge funds specialise in private equities that buys the privately held businesses and take them over. However, the common goal for all hedge funds is to make money despite market fluctuations.
Why invest in a hedge fund?
The basic structure of a hedge fund company allows the fund manager to present a strategy to investors. The investors who buy into this strategy expend the fund manager to stick to it. The strategy might be in order to specialise in certain types of investments. For example patents or common stock.