If you’re confused about the question “what is a hedge fund?” you are not alone. Part of their allure is their exclusivity and secrecy. 

While hedge funds are considered unique investments in the world of personal finance, in simple terms, they are nothing more than an investment vehicle similar to a mutual fund.

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What is a Hedge Fund?

At its most basic, a hedge fund is a partnership between a professional fund manager and investors (often referred to as limited partners). The manager and investors pool money into a fund, using different strategies to grow the fund. 

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Hedge Fund Strategies

While there are hundreds of strategies employed by hedge funds to generate returns for their investors, most can be grouped into four main categories: – Global macro – Directional – Event-driven – Relative value

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How Can You Invest in Hedge Funds?

Investing in a hedge fund is not as simple as buying a stock. Due to government restrictions and minimum investment thresholds, the average person cannot invest directly in a hedge fund. 

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How Do Hedge Funds Make Money?

Hedge funds make money through their fee structure, as well as their underlying performance. A typical hedge fund fee structure is “2 and 20”, which means they charge a 2% annual fee on the total assets under management, as well as a performance fee of 20% of the total profit.

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Famous Hedge Fund Examples

Many prominent hedge fund managers attain celebrity status, at least within financial circles, and some have achieved household-name status, especially after the 2008 financial crisis. 

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