Topic hub
Hedge funds
A hedge fund is a pooled investment vehicle, typically private and open-ended, whose manager pursues flexible trading strategies using short selling, leverage and derivatives. This hub covers hedge fund strategy families, fee terms, liquidity terms and the structures hedge funds use.
Hedge fund strategies come first, followed by the open-end and master-feeder structures that hedge funds typically use. Fee terms include the performance fee, the high-water mark and the hurdle rate. Liquidity terms (redemption, lock-up, gates and side pockets) set when and how investors can withdraw capital.
Hedge funds are alternative assets but not private-market assets. Closed-end private funds, which call and return capital instead of taking subscriptions and redemptions, are covered in Fund structures.
Reference index
Definition:
Hedge Fund — A hedge fund is a pooled investment vehicle, typically private and open-ended, whose manager pursues flexible trading strategies using short selling, leverage and derivatives, charges a management fee and a performance fee, and offers periodic, restricted liquidity.
Strategies and structures
3 concepts- Hedge Fund Strategies
Hedge fund strategies are the families of investment approaches hedge funds use, commonly grouped as equity long/short, event-driven, relative value, global macro, managed futures, credit and multi-strategy, each with distinct return drivers, risks and liquidity needs.
- Open-End Fund
An open-end fund is a fund that issues interests investors can require it to redeem at or near net asset value, so its capital rises and falls with subscriptions and redemptions rather than being fixed at a closing.
- Master-Feeder Structure
A master-feeder structure is a fund arrangement in which two or more feeder funds, each designed for a different investor group, invest substantially all their assets in a single master fund that holds and trades the portfolio.
Fees
2 concepts- Two and Twenty
Two and twenty is shorthand for a manager fee structure of a 2% annual management fee plus 20% of profits as carried interest or a performance fee, the reference point for private equity, venture and hedge fund fees.
- Hurdle Rate
A hurdle rate is the minimum rate of return an investment or fund must achieve before a performance-based payment starts; in private funds, the threshold, commonly 8% a year, that LP capital must earn before carried interest is paid.