Hedge Fund
Hedge Fund#
Definition#
A hedge fund is a private investment fund that uses advanced strategies (short selling, leverage, derivatives, arbitrage) to generate returns independent of market direction. The term "hedge" refers to protection: the earliest hedge funds sought to shield themselves against market declines while still capturing the upside.
The best-known hedge funds are Bridgewater Associates (Ray Dalio, ~$150bn), Renaissance Technologies (Jim Simons, the most profitable fund in history at +66% annualized), Citadel (Ken Griffin), and Two Sigma. They typically charge "2 and 20": a 2% annual management fee plus 20% of profits. Minimum investment generally ranges from $1m to $10m.
Key Takeaway
Hedge funds are reserved for institutional and high-net-worth investors. They are not accessible to the general public, and their average performance often trails a simple S&P 500 ETF despite far higher fees. The standouts (Renaissance, DE Shaw) are statistical exceptions.
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