Definition of 'Hedge Fund'

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They write your company a check, you put the cash into a brokerage account , then you deploy the capital according to any guidelines spelled out in the operating agreement. Perhaps you use the money to buy up local restaurants, or maybe you start a new company. The more money you make for your investor, the more money you get to take home.

You must meet certain income and net worth requirements to invest in a hedge fund. Generally, only "accredited investors" are able to invest in these funds due to government regulations. Accredited investors can be either a person or an entity.

Hedge Funds: What Are They?

Hedge funds aren't subject to some of the federal rules that protect everyday investors, and this can make them riskier than other investing options. Individual investors must meet one of these criteria:. If the investor is an entity:. The U. Securities and Exchange Commission describes a sophisticated investor as a person with sufficient investing knowledge and experience to make informed decisions about the risks of the potential investment. Managers of hedge funds are compensated based on the terms or arrangements in their funds' operating agreements, but many hedge fund managers receive the standard "2 and Other hedge fund managers are paid on a pure profit arrangement.

Securities and Exchange Commission.

Electronic Code of Federal Regulations. Accessed Aug. Investing Portfolio Management. Table of Contents Expand. Table of Contents. What Is a Hedge Fund? How Does a Hedge Fund Work? A Hedge Fund Example. This change requires you to reset your password.

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