What are hedge funds?

Hedge funds are best understood as private entrepreneurial investment companies that operate with few constraints. Their investment strategies may be similar to or different from other hedge funds, and they can be sorted into generic types. They have so far been lightly regulated, if at all, though this position is changing. All hedge funds have in common remuneration structures that are exceptionally favourable to the hedge fund managers when their fund performance is good. However, when performance is poor, management stability may be undermined by the improbability of employees being able in the near future to earn substantial remuneration at that hedge fund. Three other characteristics are the investment of a substantial part of the ma....