Hedge Fund

What is Hedge Fund? — Definition

Hedge funds are pooled investment vehicles available only to accredited investors (those with $1M+ in net worth or $200K+ annual income). Unlike mutual funds, they face fewer regulatory constraints and can employ complex strategies: long/short equity, global macro, event-driven, arbitrage, and more. The traditional fee structure is '2 and 20' — 2% of assets annually plus 20% of profits.

The name 'hedge' originally referred to hedging market risk — running long and short positions simultaneously to profit regardless of direction. Today, many hedge funds are directional (mostly long) and the term has evolved to simply mean a sophisticated, lightly regulated fund for wealthy investors.

Example

Michael Burry's Scion Asset Management predicted the 2008 housing crisis by buying credit default swaps on mortgage-backed securities. His fund returned over 490% in 2007–2008 while the market crashed. This is the kind of high-conviction, unconventional bet that defines hedge fund investing.

BMInsider's Smart Money Tracker follows the 13F filings of 15 legendary hedge fund managers including Michael Burry, Ray Dalio, and David Tepper, letting you see their long equity positions each quarter.