Börsenlexikon: Hedge fund

Hedge funds are unregulated or lightly regulated investment funds that are actively managed. They pursue a wide variety of investment strategies and can implement them using a broad range of financial instruments, including derivatives and short selling. In this way, it should be possible to achieve above-average returns even if prices fall. Hedge funds are advertised as having a very high risk of loss but the opportunity for very high returns. Despite their name, which refers to risk hedging strategies, hedge funds are considered to be an extremely risky form of investment due to the high leverage of the derivative products. Hedge funds usually attempt to generate a higher return on equity by means of debt financing (leverage effect).

Most hedge funds are based in offshore financial centres. Well-known hedge funds are the Quantum Funds of the investment banker George Soros and the fund Long-Term Capital Management, which, however, collapsed in 1998.

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