Hedge fund

A hedge fund is an actively managed investment fund with a highly flexible investment strategy. Unlike traditional mutual funds, hedge funds are subject to significantly fewer regulatory restrictions. The goal is typically to achieve an absolute return that is independent of general market trends.

To achieve this, hedge fund managers use various instruments:

• Short selling: Betting on falling prices.
• Leverage: The use of borrowed capital multiplies gains (and losses).
• Derivatives: Options and futures are used for hedging or speculation.

The name “hedge” comes from the fact that these funds were originally intended to neutralize market risks through offsetting positions. Today, however, the focus is often on maximizing returns. Due to the high risks and complex fee structures, they are usually reserved for institutional investors or very wealthy individuals.

Hedge funds often charge high fees. It is not uncommon for them to charge a two percent management fee on assets under management (AUM) as well as an additional performance fee on the profits generated.