A hedge fund is a pooled investment vehicle that seeks to achieve high returns by employing a variety of sophisticated investment strategies, including long/short equity, arbitrage, leverage, derivatives, and global macro trading. Hedge funds often take on more risk than traditional mutual funds, and they may use leverage to amplify returns. They typically cater to accredited investors, such as high-net-worth individuals and institutional investors, and charge high management fees (e.g., a 2% annual fee) along with a performance fee (e.g., 20% of profits).
An investment partnership engineered for tactical freedom, pairing a limited roster of accredited capital with a manager’s mandate to roam across strategies, asset classes, and geographies without the guardrails that tether traditional mutual funds. The legal chassis usually rests on a master-feeder structure: offshore and onshore feeders collect subscriptions, pour them into a master trading vehicle, and in return receive proportional claims on every tick of profit and loss that the master records. Performance fees, levied after a high-water mark test, sit atop a management fee that funds research budgets, data feeds, and access to liquidity venues.
Inside the portfolio, leverage walks hand in hand with risk management technology. Equity long-short books splice factor exposure with single-name conviction, fixed-income relative-value desks arbitrage curve kinks with repo financing, and global macro pods light up option grids to express views on central-bank missteps. Position sizing runs through real-time Greeks, stress ladders, and correlation matrices that recalc every few seconds on distributed cloud clusters. Margin waterfalls feed these analytics: prime brokers post dynamic requirements, central counterparties set variation calls, and internal treasury teams juggle collateral like air-traffic controllers guiding aluminum barrows of cash and Treasuries among clearinghouses.
Investor relations lives on monthly tear sheets and quarterly letters that translate the fund’s neural fireworks into coherent narrative. Drawdowns trigger risk-off tactics that throttle gross exposure; hot streaks invite capacity questions as liquidity costs climb the slippage curve. Gates, side-pockets, and hard-lock periods sit in the governing documents, spelling out how—and when—capital can escape if volatility widens exit doors to needle-eye size.
