HEDGEFUND

Generally, a hedge fund is a lightly regulated private investment fund sometimes characterized by unconventional strategies (e.g., strategies other than investing long only in bonds, equities or money markets)

They are primarily organized as limited partnerships, and previously were often simply called "limited partnerships" and were grouped with other similar partnerships such as those that invested in oil development.

The term Hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. Jones' innovation was to sell short some stocks while buying others, thus some of the market risk was hedged. While most of today's hedge funds still trade stocks both long and short, many do not trade stocks at all.

For U.S.-based managers and investors, hedge funds are simply structured as limited partnerships or limited liability companies. The hedge fund manager is the general partner or manager and the investors are the limited partners or members respectively. The funds are pooled together in the partnership or company and the general partner or manager makes all the investment decisions based on the strategy it outlined in the offering documents.

In return for managing the investors' funds, the hedge fund manager will receive a management fee and a performance or incentive fee. The management fee is computed as a percentage of assets under management, and the incentive fee is computed as a percentage of the fund's profits.

Like mutual funds, hedge funds pool investors' money and invest those funds in financial instruments in an effort to make a positive return.

Many hedge funds seek to profit in all kinds of markets by pursuing leveraging and other speculative investment practices that may increase the risk of investment loss.

Unlike mutual funds, however, hedge funds are not required to register with the SEC. This means that hedge funds are subject to very few regulatory controls. Because of this lack of regulatory oversight, hedge funds historically have generally been available solely to accredited investors and large institutions. Most hedge funds also have voluntarily restricted investment to wealthy investors through high investment minimums (e.g., $1 million).

Historically, most hedge fund managers have not been required to register with the SEC and therefore have not been subject to regular SEC oversight. However, in December 2004, the SEC issued a final rule and rule amendments that require certain hedge fund managers to register with the SEC as investment advisers under the Investment Advisers Act by February 1, 2006.