Chapter 1

Hedge Fund Fundamentals

Training is everything. The peach was once a bitter almond; cauliflower is nothing but cabbage with a college education.

—Mark Twain

This chapter provides a brief 20,000-foot-view introduction to hedge funds and provides a context for the content of this book. In this chapter I briefly cover the history of hedge funds, important definitions, the hedge fund ecosystem, media portrayal of hedge funds, five industry trends, regulations, and the future of hedge funds.

Why important: This chapter is the foundation for the rest of this book. If you have more than five years of industry experience, you may want to skim this chapter and skip to the chapter review questions to check your level of industry knowledge.

What this chapter is not: This book is not a thorough review of hedge fund investment strategies or analytics; those topics are already covered in dozens of other texts, including two that are required in the Certified Hedge Fund Professional (CHP) Designation Program. See these required books and other recommendations at

What is a hedge fund? The one-sentence definition of a hedge fund is “a private investment vehicle that charges its investors two types of fees: a management fee and a performance fee.” Any more specific definition will lead to conflicts in the industry today, as it has grown in many directions. The management fee is a standard fee based on total assets under management and it typically runs between ...

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