The Motley Fool – The popularity of hedge funds grew quickly in the ’90s, when their numbers more than doubled. While the word “hedge” might conjure up images of investors cautiously hedging their bets, hedge funds are often extra-risky, extra-volatile investment vehicles that demand huge up-front investments, sometimes in the millions. You may be unlikely ever to invest in one, but it’s good to understand what they are and aren’t — if only to impress colleagues at the water cooler.
Let’s review some of their qualities. Like mutual funds, hedge funds are made up of the pooled money of multiple investors, and the pooled money then gets invested by a professional money manager. However, unlike mutual funds, hedge funds are not subject to many regulations from the Securities and Exchange Commission (although that may change in the near future), and their managers don’t have to be registered investment advisors. But they are not permitted to advertise the funds. And they’re not open to just any investor: Only “accredited investors” need apply. These are folks who generally earn upwards of $200,000 per year and who are worth more than a million smackers.
