A hedge fund is a collective investment instrument managed by a professional management company, and is often structured as a partnership or a limited liability company or a similar financial institution. Hedge funds, as a rule, differ from mutual funds, since their use of leverage is not controlled by regulatory authorities and private equity funds, and also by the fact that most hedge funds invest in relatively liquid assets. Hedge funds invest in a wide variety of markets and use a wide range of investment styles and financial instruments. The name "hedge fund" refers to the hedging methods traditionally used by hedge funds, however, the purpose of hedge funds today is not exclusively hedging. Hedge funds are created only for certain sophisticated or accredited investors and cannot be offered or sold to the general public. Thus, they tend to avoid direct supervision by regulatory authorities, circumvent licensing requirements applied to investment companies, and operate with more flexibility than mutual funds and other investment funds. Hedge funds have existed for many decades, but in recent years they have become increasingly popular, they are increasing their scale and becoming one of the world's largest investment instruments and sources of capital.
Hedge Fund activities
The activities of hedge funds are often not limited, their investors have the opportunity to replenish them or exit them (as a rule, monthly or quarterly). The capital of a hedge fund is calculated as a share of the net asset value of the fund, which means that the increase and decrease in the amount of the fund's investment assets (and the fund's expenses) are directly reflected in the amount of profit that the investor can later withdraw.
Hedge Fund strategies
Many hedge fund investment strategies are aimed at achieving a positive return on investment, regardless of whether the markets are rising or falling ("absolute return"). Hedge fund managers often invest money from their own funds that they manage, which serves as an alignment of their own interest with the interest of investors in the fund. Every year, a hedge fund usually pays its investment manager a commission for managing funds (for example, 1% of the fund's assets), as well as service fees (for example, 20% of the increase in the value of the fund's net assets during the year). Some hedge funds have several billion dollars of assets under management. As of 2009, 1.1% of the total funds and assets held by financial institutions are concentrated in hedge funds. As of June 2013, the turnover of the global hedge fund industry is 2.4 trillion USD.
Since hedge funds are not accessible to the general public or retail investors, these funds and their managers are not subject to such strict regulatory control as other funds and investment managers regarding the structure of funds, their strategies and employment methods. The rules adopted in the United States and Europe after the 2008 credit crisis were aimed at increasing state control of hedge funds and eliminating some gaps in legislation.