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Hedge Funds
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- The original term was "Hedged" fund - a fund that
is hedged and attempts to protect it's investors against market
swings by the structure of its long and short position.
- Hedge funds are a limited partnership organized
to invest in securities and alternative investments, with a partnership
structured in such a way as to give the general partners- the
managers of the fund- a share of the profits earned on the money.
- The structure has two main features, first the partnership arrangement,
through which managers of a fund can be compensated in such a
way as to leave them highly motivated to do well. Second, the
use of short selling as a hedge, or protection against a bear
market. In an attempt to increase protection, hedge funds
need to have a significant amount of short positions, to protect
themselves against market drop.
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