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All About Hedge Funds by Robert A. Jaeger download in ePub, pdf, iPad

Although leverage can increase potential returns, the opportunity for larger gains is weighed against the possibility of greater losses. Without the disclosure that the securities laws require for most mutual funds, it can be more difficult to fully evaluate the terms of an investment in a hedge fund. The primary catalyst for the failure was Russia's default and a model that advised the fund to hold its position even as losses mounted. Closed-ended hedge funds issue a limited number of tradeable shares at inception.

Regulatory considerations will

Unlike management fees and performance fees, redemption fees are usually kept by the fund. Regulatory considerations will also play a role. Bridgewater counts foundations, endowments, and even foreign governments and central banks among its clientele. The business in Bermuda must be an insurance business.

The short-term capital gains rate applies to profits on investments held for less than one year, and it is the same as the investor's tax rate on ordinary income. In this sense, the average hedge fund is still much more costly than, say, an index or mutual fund, but the fact that the fee structure is changing on average is notable. Hedge fund managers pursuing the distressed debt investment strategy aim to capitalize on depressed bond prices. Many hedge funds are established in offshore financial centers to avoid adverse tax consequences for its foreign and tax-exempt investors.

Within directional strategies, there are a number of sub-strategies. Many of the most prominent fund managers have made highly-publicized bad bets which have cost them not only monetarily but in terms of their reputations as savvy fund leaders, too.

Any other type of business would likely incur penalties from the U. Performance fees are intended to provide an incentive for a manager to generate profits. The general partner may be an individual or a corporation. Many Galleon Group employees were also convicted in the scandal.

To take advantage of special situations the hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments. The founders also own the management company that runs the hedge fund. The Connecticut-based fund employs about people and focuses on a global macro investing strategy.

Performance fee rates have fallen since the start of the credit crunch. Failure to follow these rules will likely result in a ban from creating additional securities for a year or more. For example, hedge funds are not required to provide the same level of disclosure as you would receive from mutual funds.

Unlike management fees and performance fees

They also take both long and short positions, allowing them to make profit in both market upswings and downswings. It may also be difficult to verify representations you receive from a hedge fund. If you would like to read more about hedge funds, see our Investor Bulletin on hedge funds.