- A hedge fund is an investment vehicle that pols capital from a number of investors and invests in
securities and other financial instruments
- HF managers typically engage in a wide variety of investment styles and strategies to achieve
superior return for their investors
- HF may be aggressively managed or make use of derivatives and/or leverage in both domestic
and international markets
- Doesn’t actually need to have anything to do with hedging
- Additional features of HF
o Free choice of investment categories, markets (including emerging markets) and trading
methods (e.g. global macro, long-short)
Long: Buy low sell high
Short: Sell high, buy low (when IR expected to fall)
o Use of leverage (often a lot)
o Use of derivatives (options, futures)
- Invented by Alfred Jones in 1950s, he introduced something called the performance fee (20% of
the profits)