Hedge Funds

To hedge means to minimize risk or insulate oneself. Generally the term 'hedge fund' is used to refer to a type of private investment vehicle that invests all or most of its assets in publicly traded securities and hedges the investors’ risk from market exposure. These investment vehicles are commonly structured as limited partnerships in which the investment manager, or the investment manager's capital management company, acts as the general partner while the investors act as the limited partners. These funds are alternative investment vehicles and are generally available to high net worth individuals and institutional investors. For the investors who make up the fund, there is usually little or no market liquidity. In fact they usually have a minimum lock in period ranging from one to three years.

Hedge funds are broadly defined by their structural characteristics. They are considered to be an asset class that aims in producing absolute (not relative) returns, irrespective of how the markets perform. The best of these funds offer greater diversification, less risk and more stable returns than conventional equity investments moreover some offshore hedge funds can offer plan sponsors a third advantage: tax-free hedge fund investing.

The conventional equity and bond manager’s performance is largely related to the
performance of the underlying markets. On the other hand, performance of hedge funds
depends on the skills of the fund manager, who risk his own as well as his clients’ capital. The manager receives a fee for managing the fund, only if it is productive.

Strategies of Hedge Funds aka Hedgers
Hedgers use the futures market to protect themselves from risk. Similarly the portfolio managers hedge stock fund risk. Commonly, prices in the cash markets have a fundamental relationship to the futures prices. When the forces of demand and supply change the prices in the cash market, the future prices are supposed to move in a parallel fashion. But in reality they do not move.

Hedgers take advantage of this relationship between cash and futures prices. Analysts attempt to classify them into a number of different strategies and sectors, but each set of managers is essentially looking to exploit pricing anomalies through trading, rather than through simply buying and holding of the assets. Hedge fund managers aim to exploit price differentials, remaining market-neutral. Successful funds with good track records make money and prosper, although limits to the size of trades and the need to stay nimble do limit a manager's size.

The size of the hedge fund industry, relative to the markets in which the funds operate, is too small for hedge funds alone to move the market. However, it is
possible that they may move the market because other investors follow their lead.

http://en.wikipedia.org/wiki/Hedge_fund

http://www.barclayhedge.com/research/educational-articles/hedge-fund-strategy-definition/what-is-a-hedge-fund.html

http://money.cnn.com/2008/12/18/news/economy/hedge_fund_liquidations/?postversion=2008121817

http://www.hennesseegroup.com/releases/release20100119.html

http://online.wsj.com/article/BT-CO-20110304-711526.html (Trillions)

http://www.hedgeworld.com/

http://www.hedgefund.net