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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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What is a Hedge Fund?

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: What is a hedge fund?

A: Hedge funds are similar to mutual funds in many aspects but their performance is not based on the performance of the underlying markets. Hedge funds are used by wealthy investors to diversify their portfolio and insulate them from market risks. At least that's what they are supposed to do - it does not always work out that way, First of all, hedge funds are not for ordinary investors. The minimum investment is $25,000 and many have a minimum of $250,000 or more. The fees are steep, often 3% of assets plus the manager keeps 30% of the profits. Still, there are years when hedge funds outperform stocks and mutual funds. This explains their popularity; there are almost as many hedge funds operating today as there are mutual funds or stocks. If you don't qualify to be in a hedge fund, don't worry, an average stock or mutual fund will probably outperform the average hedge fund in 2005.


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