hedge fund investment & finance definition
Private
investments, open to large customers and wealthy individuals, that use borrowed
funds to invest in the stock, bond, and foreign exchange markets. Hedge funds
are exempt from regulation by the Securities and Exchange Commission (SEC)
under federal securities laws. Thus, hedge funds are not required to limit the
types of financial instruments included in their fund and don’t have to
disclose information about their holdings beyond what they voluntarily want to
disclose. Hedge funds often take 20 percent of the annual return for their
profit, with an annual fee of about 2 percent.
See hedge fund in Wall Street Words
A very specialized, volatile, open-end investment company that permits the manager to use a variety of investment techniques usually prohibited in other types of funds. These techniques include borrowing money, selling short, and using options. Hedge funds offer investors the possibility of extraordinary gains with above-average risk.
Case Study Even hedge fund managers with an excellent track record sometimes decide to throw in the towel. In March 2000 well-known hedge fund investor Julian Robertson announced that he had decided to close hedge funds managed by Tiger Management LLC, a firm he started in 1980. Saying he didn't understand the booming market for Internet stocks, the value investor who had accumulated an impressive record for beating the market indicated he would return approximately $4.5 billion to investors and retain nearly $1.5 billion of his own funds. Tiger Management had produced a loss of 19% in 1999 and an additional loss of 13% in 2000 up to the date of the announcement. Liquidation of the funds required that investment positions in Tiger Management's holdings, including U.S. Airways Group and Normandy Mining, would be gradually sold so that cash could be returned to Tiger's investors. Robertson announced the closing of his hedge fund just as Internet stocks had peaked and were heading for a major decline in value.
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