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What Are Hedge Funds ?

17 November 2014 by National Bank
What Are Hedge Funds ?

A hedge fund is an investment fund that uses complex strategies at high risk. Investors in a hedge fund accept these risks in the hope of making significant capital gains.


The nature of the hedge fund makes it an attractive investment option for institutional and high net worth investors. The general public cannot invest in hedge funds as they would in, say, mutual funds.

Hedge Funds vs. Mutual Funds

The non-traditional strategies used by hedge funds distinguish them from mutual funds.

Mutual funds invest in stocks, bonds and money markets, focusing primarily on long-term portfolio growth.

Hedge funds, on the other hand, use a variety of strategies, including short selling, which focuses on lowering the price of a security. Arbitrage is another common hedge fund strategy, which aims to capitalize on price differentials between related securities.

The type of portfolio management that uses hedge funds is often referred to as “alternative asset management”.

Hedge funds are also commonly referred to as “speculative funds”, “alternative funds” or “arbitrage funds”.

In recent years, hedge funds have been largely responsible for the emergence of shareholder activism. Hedge funds have targeted certain publicly-traded companies in order to push them to take action aimed at increasing the value of their stock. For hedge fund managers, it’s a quick way to increase the value of their holdings in these companies.

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