What is a Hedge Fund (or how do they differ from mutual funds)?
April 9, 2008 – 5:28 pmAnthony Clake, who is working at Marshall Wace had to give a definition of what Hedge Funds are at the London School of Economics Alternative Investment Conference.
He referred to the Wikipedia-Entry on Hedge Funds, but I found an even better description in Hulls book which also outlines the differences to mutual funds:
A hedge fund is similar to a mutual fund that it invests fund on behalf of clients. However, unlike mutual funds hedge funds are not required to register under U.S. Federal Securities Law. This is because they accept funds only from financially sophisticated individuals and do not publicly offer their securities.
Mutual funds are subject to regulation requiring that shares in the funds be fairly priced, that the shares be redeemable at any time, that investment policies be disclosed, that the use of leverage is limited, that no short positions be taken, and so on.
Hedge funds are relatively free of these regulations. This gives them a great deal of freedom develop unsophisticated, unconventional and proprietary investment strategies.
Financially sophisticated individuals - such as Bank Managers? Anyway, make a mental memo and check what regulation applies to Hedge Funds in the UK and in Germany.
Topics of this post: alternative investment, anthony clake, definition, hedge fund, john c. hull, london school of economics, marshall wace, Memo, mutual fund, regulation
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