HEDGE FUNDS

The term “hedge fund” has no formal definition in securities law. A hedge fund is a private investment partnership which is managed by professional money managers who have their own money in the fund. It is a very specialized investment fund that permits the manager to use a variety of techniques normally prohibited in other types of funds due to the private aspect of the pooled fund.

Hedge funds offer investors the possibility of earning above average returns. However, in return the clients must be willing to take on a position of above average risk. Sophisticated money managers use a wide variety of investment strategies which can include simple long positions, short positions, utilizing options and complex arbitrage strategies. These investment activities may by characterized by high portfolio turner and short-term holding periods. Given those characteristics, any gains or losses in the hedge fund would be categorized as income and not as capital gains.

Hedge funds have generally outperformed all other asset classes over the last 5 years. In addition to providing some tax benefits to investors, good hedge fund managers will provide investors greater diversification, lower volatility, risk management, capital protection and greater appreciation than conventional investments.