[...]... Note that London-based HedgeFund Intelligence estimates total global hedge fund assets at the end of 2006 to be $2 trillion, a 30 percent year over year increase Getting Started in Hedge Funds 5 Between 2001 and 2004, over 600 new hedge funds were established on average each year Hedge funds and mutual funds differ substantially in the amount of assets they manage There are some hedge funds that are... that hedge fund managers can take investment action much faster and without artificially moving the market, as some mutual funds often do In addition, smaller hedge funds allow managers to take positions in smaller investments and generate opportunistic gains, whereas mutual funds cannot, given that even a small position on their part would equate to a large investment, thus artificially moving the market... investor-manager relationship With mutual funds, an investor becomes a shareholder of the manager The same cannot be said for hedge funds because the investor and the manager become business partners This is evidenced by the legal arrangement they enter into with the limited partnership A mutual fund manager may have no material personal assets in the fund he or she manages, but a hedge fund manager will... protection than do sports cars The same difference can be applied to mutual funds and hedge funds as well Mutual funds tend to safeguard investor assets more so than hedge funds However, regardless of the vehicle, passengers are at greater risk traveling on expressways and major streets than they are traveling side streets For example, if small-cap stocks are expressways and blue-chip stocks are side streets,... magnify the small gains Chapter 12 discusses hedge funds that are really just a mix of the other hedge fund types These hybrid hedge funds either employ more than one strategy to manage their funds or become a pool of money and invest in other stand-alone hedge funds These are call funds of funds the fastest growing type of hedge fund The last section in this chapter talks about values-based hedge funds, ... in good and bad markets To accomplish this aim, hedge funds employ many different strategies, financial instruments, and tools of the trade Some strategies are aggressive, and some are conservative Hedge funds are managed by professional investment managers and are limited to a small number of “accredited investors.” Hedge fund managers receive a percentage of the profits earned by the fund as an incentive... investments that are not in the same style or strategy as the manager is a fruitless endeavor Comparisons must be made using apples to apples and oranges to oranges For example, large-cap equity managers will measure themselves against the Standard & Poor’s (S&P) 500 Index, whereas small-cap equity managers will measure themselves against the Wilshire 5000 Index Doing so will give the managers and their... large-cap stocks and buying Treasury bonds, buying small-cap stocks using significant leverage, or implementing a strategic asset allocation approach It is the selection of the strategy that is vitally important Hedge fund managers go long, or buy an investment, in order to take advantage of forecasted price advances Likewise, hedge fund managers go short, or sell a borrowed investment, to take advantage... their hedge fund Rarely will you find a hedge fund where the manager, or general partner, does not have some stake in the returns Often managers will manage assets of friends and family as the fund grows and gains exposure When managers run hedge funds with their own money and that of their friends and family, they have an extra incentive to generate attractive absolute returns Generating attractive absolute... within certain boundaries, of course On a side note, many mutual fund organizations are entering the hedge fund trade and are training their traditional mutual fund managers on how to run a successful hedge fund SEPARATE ACCOUNTS Most hedge funds are formed as one big pool or account All the assets from investors are commingled in the one account and managed by the hedge fund team Hedge Funds Demystified . - - Stocks - - Hedge Funds - - Bonds - - Real Estate - - Mutual Funds - - Commodities - - Money Markets - - Private Equity - - Venture capital Investing Universe Traditional Investing Alternative. title: 0-0 7-1 4960 0-9 . All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion. require a somewhat more polished driver, and have substantially fewer safety fea- tures in the case of a crash. The same positives and negatives can be said of hedge funds and mutual funds. By far