Hedge funds are investment vehicles that employ various strategies to generate returns while minimizing risk. They are typically open to accredited investors like pensions, endowments, and high-net-worth individuals. Hedge funds invest globally across a wide range of assets and use diversification and unique strategies like long/short equity and global macro to deliver returns. They are regulated entities that provide important benefits like stronger retirements and funding for colleges and communities.

1. WHAT IS A HEDGE FUND?
UNDERSTANDING AN IMPORTANT TOOL THAT CREATES VALUE, DELIVERS RELIABLE
RETURNS, MANAGES RISK, AND DIVERSIFIES INVESTMENTS

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What is a hedge fund?
Contents
Table of Contents:
The Origin of Hedge Funds 3
Hedge Funds Defined 4
How Are Hedge Funds Regulated 5
Who Invests 6
How Do Hedge Funds Invest 8
Hedge Fund Types 9
How They Work 10
Who Benefits 11
The hedge fund industry has grown in recent
years to be a leading investment partner for
institutions and individuals around the world.
While hedge funds have become a popular,
often-utilized investment tool, the industry is
still misunderstood.
This presentation serves as a basic
introduction to the hedge fund industry,
answering the following questions:
• What is a hedge fund?
• What is their purpose?
• How do they work?
• Who do they benefit?

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What is a hedge fund?
The roots of the modern day hedge fund industry date back to 1949 when a man by the
name of Alfred Winslow Jones began employing an investment strategy that offset long
equities positions with short positions in order to better manage risk. This balanced
approach now defines today’s hedge fund industry.
Over the years, hedge funds have evolved from an investment vehicle for wealthy
individuals to a tool used by pensions, corporations, unions, universities, non-profits and
high-net-worth individuals use to diversify their investments, manage risk and deliver
reliable returns so they can meet their financial obligations and goals.
The Origin of Hedge Funds
Portfolio Diversification Risk Management Reliable Returns
Hedge Funds Provide:

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What is a hedge fund?
A hedge fund is an investment vehicle that can employ a wide range of investment and trading
activities to maximize performance returns while minimizing investment risk.
Hedge Funds Defined
Minimize Investment Risk Maximize Performance Return

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What is a hedge fund?
Virtually all countries with significant financial markets have
regulatory authorities that regulate hedge funds and
managers. These include:
• In the United States, the Securities and Exchange
Commission and the Commodity Futures Trading
Commission regulate hedge fund managers and the managed
futures industry, respectively.
• In Europe, each country has its own regulator, which are then
complemented by the European Securities and Markets
Authority (ESMA) that provides a coordinating role among
competent regulators in the member states and technical
advice on hedge fund issues to the European Commission.
• Regulators in Asia with authority over managers include,
among others, Hong Kong’s Securities and Futures
Commission and the Monetary Authority of Singapore.
• International organizations play a role in assessing regulation
on hedge funds including the Financial Stability Board (FSB)
and the International Organization of Securities
Commissions (IOSCO).
How are Hedge Funds Regulated?

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What is a hedge fund?
Because hedge funds are highly regulated, fund managers can only accept investment
capital from accredited investors or qualified purchasers, including:
Who Invests?
1. Public employee retirement plans
2. Corporate employee retirement plans
3. University endowments
4. Foundations and non-profit organizations
5. Family Offices and high-net-worth individuals. Regulatory qualifications for high-net-worth
individuals are outlined below.
An individual whose net worth, or joint net worth with the person’s spouse, exceeds $1 million at the time of
the purchase, excluding the value of their primary residence
Individuals with a yearly income of $200,000 or higher in each of the two most recent years or joint income
with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level
in the current year.

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What is a hedge fund?
Who Invests?
More than half – 66 percent, according to research firm Preqin – of global hedge funds assets
are held by institutional investors including public and private employee pension plans,
university and college endowments and charitable organizations.
*Source: 2014 Preqin Global Hedge Fund Report, January 2014

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What is a hedge fund?
Hedge funds invest in a wide range of assets across capital markets globally, including:
Diversification helps hedge funds to:
• Create a stable portfolio
• Avoid over-concentration in a specific type of asset
• Protect investments from risk in market fluctuations
How do hedge funds invest
Common Stock Bonds
Commodities Currencies

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What is a hedge fund?
There are many unique types (commonly called strategies) among the 9,900* various hedge
funds active globally. Strategy examples include:
• Traditional
While each hedge fund calibrates its own degree of risk and return, their singular investment goal is to deliver
positive return to their investors while carefully managing away downside risk due to market fluctuation.
For a list of the various strategies common among U.S. hedge funds, click here.
Hedge Fund Types
Long / Short Hedge Funds
Global Macro Hedge Funds
Investing in equity securities, holding stocks for varying lengths of time to balance risk
and produce return on investment.
Evaluating economic variables to determine market impact and identify investment
opportunities
Event-Driven
Managed Futures
These funds maintain positions in companies involved in corporate transactions
including mergers, restructurings, financial distress, tender offers, shareholder
buybacks, debt exchanges, security issuance or other capital structure adjustments
Known as commodity trading advisors (CTAs), these funds invest in up to150 global
futures markets, trading in everything from grains to gold, currencies and stock
indexes.
*Source: Hedge Fund Research

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What is a hedge fund?
Unique to the investment community, hedge funds are a partnership formed between the
fund manager and the investors.
Typically hedge fund managers invest a significant amount of personal capital - in some
cases in excess of 50 percent of the total assets in the fund - aligning their interests with
that of their investors.
How They Work
Hedge Fund
Investment Capital
Investor
Capital
Managers'
Capital

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What is a hedge fund?
Who Benefits?
Hedge fund investments benefit local communities and residents in ways that are not
commonly explained or understood.
Institutions partner with hedge funds in order:
• Help strengthen retirement security for millions of public and private sector workers
• Provide funding for scholarships and research grants for colleges and universities
• Help fund critical economic, health-related and social development projects in local
communities across the nation.
Click here for an interactive map detailing how hedge funds benefit communities across the U.S.