Overview of Hedge Funds
In the United States, the Securities and Exchange Commission (SEC) has stated that the term hedge funds “has no precise legal or universally accepted definition.”1 But most market participants agree that hedge funds have the following characteristics: (1) almost complete flexibility in relation to investments, including both long and short positions; (2) ability to borrow money (and further increase leverage through derivatives) in an effort to enhance returns; (3) minimal regulation; (4) some illiquidity since an investor’s ability to get an investment back is restricted through lock-up agreements (that may prevent any liquidity during the first 1 or 2 years of a hedge fund’s life) and quarterly disbursement limitations ...
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