Glossary term
Hedge Fund
A professionally managed pool of capital that uses advanced strategies unavailable to retail funds.
Hedge funds are investment vehicles that can go both long and short, use leverage, trade derivatives, and employ sophisticated risk models. Unlike mutual funds, they are lightly regulated and typically charge a performance fee (e.g. '2 and 20' — 2% management fee, 20% of profits). Systematic hedge funds run rules-based strategies executed by algorithms rather than discretionary judgment.
Example: A systematic equity hedge fund might rank 500 stocks by momentum, go long the top 50 and short the bottom 50, hedge out sector exposure, and run the book at 5× gross leverage.