A hedge fund is a type of private placement investment that is managed by investment management firms and is made up of sophisticated or institutional investors. The fundamental reason why various individuals participate in hedge funds is to protect themselves from losses in other assets. Managers of investment pools employ a variety of tactics, including leverage and esoteric asset trading, in an attempt to outperform the markets in terms of returns. Hedge funds invest in portfolios built with high risk management strategies in order to produce large returns even in the worst-case scenarios.
Hedge funds displays multiple characteristics which are discussed below:
- Hedge funds are financial instruments which requires investment of large amount of capital and thus is not available to general public just as mutual funds are.