The following is a broad summary of the rules governing hedge funds. It is not intended as legal, investment or operating advice of any kind. Readers must consult their own legal, financial and tax advisers regarding these matters. As with all investments, the investor is ultimately responsible for evaluating the appropriateness of the vehicle relative […]

Q: I am wondering if any of you sharp minds out there can help me understand the Sharp ratio.     In order to achieve a high Sharp ratio, doesn’t one have to have high cash levels at all time?    A: This explanation is offered by site visitor Trevor:    In my opinion a high, and consistent, Sharpe […]

The first hedge fund was set up by Alfred W. Jones in 1949. Jones wanted to eliminate a part of the market risk involved in holding long stock positions by short-selling other stocks. He thereby shifted most of his exposure from market timing to stock picking. Jones was the first to use short sales, leverage […]

Hedge fund is a general, non-legal term that was originally used to describe a type of private and unregistered investment pool that employed sophisticated hedging and arbitrage techniques to trade in the corporate equity markets. Hedge funds have traditionally been limited to sophisticated, wealthy investors. Over time, the activities of hedge funds broadened into other […]

Akin, Gump, Strauss, Hauer & Feld, L.L.P. (reprinted with permission)     1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201-4675 Telephone: (214) 969-2800 by Ford Lacy, P.C. (flacy@akingump.com) and Eliot D. Raffkind, P.C. (eraffkind@akingump.com)     Q: What sort of legal structure should be used?     A: The simplest, least expensive, least complicated form for an investment limited partnership (“Hedge Fund”) […]

With all this talk of hedging, it might help to provide a definition of what is meant so those who are unaware can get up to speed. Hedging is simply an investment strategy that is designed to offset investment risk. Depending on the type of investing, various hedge strategies can be employed. In theory, a […]

Mutual funds are operated by investment companies, regulated by the SEC, the IRS and other agencies and entities.   Money for the funds is raised from the public. Usually, very little of the investment company’s own money is actually invested.   Investors share equally in gains and losses proportionate to their investment.   Mutual Funds offer investors professional […]

Convertible Arbitrage: An investment strategy that is long convertible securities (usually preferred shares or bonds) that are exchangeable for a set number of another form (usually common shares) at a prestated price, and short the underlying equities.  Distressed Securities: Fund invests in securities (equity and/or debt) of a company either already in bankruptcy or facing […]

A hedge fund is a private investment limited partnership that invests in a variety of securities. There are two types of partners in a hedge fund, a general partner and limited partners. The term hedge fund is misleading in that a hedge fund does not necessarily have to hedge. The term “hedge fund” now means […]