What Is A Hedge Fund?
In the world of Finance, Hedge Funds are popularly known as, ‘Investment Vehicles With A Twist’. The latter holds quite a lot of truth when it comes to the concept of hedge funds, mainly because they are mighty complicated. There is a very interesting analogy about them, which has become quite popularly in the finance circles, lately. It goes something like, hedge funds are those entities, to invest in which one would require as much money, as Bill Gates, while to manage these, a professional would be required to have the brains similar to that of Einstein. Now you must have gotten the general idea about these entities and their nature. Hedge funds in particular shot to fame, as a result of certain clever financial strategies that were put to use, in order to generate great returns and they have remained in the limelight ever since. Very different from the traditional ways of the industry of funds, its basically the media coverage and the surmounting interest of the others, that has led to the Hedge Funds coming to fore and becoming so popular among finance enthusiasts. Let’s move on to more substantial attributes of these concepts. Hedge Fund, in simple words refers to a certain type of pooled investment. But then again, this definition falls short, mainly because it is similar to that of a mutual fund. The major difference that sets Hedge Funds apart from the rest is, that these are open to only a certain number of investors, like a very exclusive clique and their performance is measured in absolute return units. Let’s take a look at the two terms, Hedge and fund. According to their nomenclature, hedging is basically referred to lowering the overall risk. Hedge Funds basically take up an asset position in any firm, which then results in offsetting the existing risk. These funds or the professionals working in this area, basically go on to reduce risk by using a number instruments and
strategies. Apart from this, they are also known to be extremely flexible in the options of their investments. The various other functions of a hedge fund include taking of both Long and Short positions, using Arbitrage, buying and selling of undervalued securities, trading of options or bonds. With their basic aim, to reduce the risk and at the same time, try and preserve the capital; the professionals here are supposed to in any opportunity that exists in the market. Hedge Funds have their very own, independent characteristics, which basically include the ability to deliver, non market correlated returns. Apart from that, the major investors, in these funds are pension funds, endowments, insurance companies, private banks and high net worth individuals and families. Hedge Funds are basically liquid investments, with little to no regulations and the professionals working herein, are known to make use of Aggressive Investment Strategies. These funds are usually managed by a professional, who has a considerable experience in the field of Investment Banking. This is another reason as to why, a number of Investment Banking aspirants, choose to go into Hedge funds, due to their great returns aspect. Apart from the experience, one is also required to have a professional certification in Hedge Funds, from an esteemed institute, like Imarticus Learning, if one wishes to work with top high net worth individuals.