What is a hedge fund?
Answer: A hedge fund is a privately offered investment fund that pools investors’ money and uses flexible strategies, potentially including short selling, borrowing, and derivatives, to pursue returns. Typically available to qualified investors, hedge funds often charge management and performance fees, restrict withdrawals, and carry substantial risks. Despite their name, they do not necessarily reduce risk.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
How do hedge funds charge fees?
Hedge funds traditionally charged two and twenty: a 2% annual management fee plus 20% of profits as a performance fee. Many funds now charge less. Some use a high-water mark, meaning the manager earns a performance fee only after recovering any earlier losses. Because fees are high, net returns after fees are what matter.
What is the difference between a hedge fund and private equity?
Hedge funds mostly trade publicly traded securities, such as stocks, bonds, currencies and derivatives, and usually allow withdrawals monthly or quarterly. Private equity funds buy whole companies or large stakes in private companies, hold them for years, and return money only as companies are sold. Hedge funds are generally more liquid; private equity is more long term.
Who can invest in hedge funds?
Most hedge funds accept only accredited investors, and many require qualified purchasers, a higher standard. Minimums are often $100,000 to $1 million or more. Some registered funds, such as liquid alternative mutual funds, use hedge fund strategies with daily liquidity and lower minimums, though they face limits on leverage and illiquid holdings.
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Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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