Glossary · from the DESK dictionary
Hedge Fund
A privately organized investment fund with broad freedom over strategy, leverage, and short-selling, usually accessible only to institutional/wealthy investors.
In plain words
A fund that, unlike traditional mutual funds, can do almost anything — long, short, leveraged, across almost any asset class.
In more detail
A hedge fund is a lightly regulated vehicle for professional investors permitted to use short selling, leverage and derivatives. The name is historical and misleading: only some strategies actually hedge anything. The real common feature is not hedging but the fee structure with performance participation and near-total freedom in investment policy.
Example
Of 40 funds in a peer group, 31 run predominantly net long. Their returns correlate 0.82 with the equity market — practically nothing is hedged.
What it means for traders
A significant part of the institutional investment landscape with substantial influence on market liquidity and price discovery.
Common pitfalls
High leverage and limited transparency can lead to sudden, substantial losses.
Related terms
Absolute Return · Absolute Returns · Accredited Investor · Activist Investor · Alternative Asset · Distressed Securities · Fixed Income Arbitrage · Fund of Hedge Funds · Gate Provision · Global Macro Fund · Hedge · Hedge Fund Administrator · Hedge Fund Due Diligence · Hedge Fund Fee Structure · Hedge Fund Index · Hedge Fund Manager · Hedge Fund Replication · Side Pocket · High Water Mark · John Meriwether · Julian Robertson · Ken Griffin · Liquid Alternatives · Long/Short Equity · Prime Brokerage · Two and Twenty
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.