Main | Hedge Funds Must Adapt to Transparency Demands to Survive »



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A hedge fund is a private liteimd partnership that engages in investing techniques that mutual funds are not allowed to, as they are regulated by the SEC. As hedge funds are privately held, they are exempt from the Investment Company Act of 1940 through provision 3(c)(1) of the act and therefore have much more flexibility and are less regulated in what activities they can engage in. Your understanding is correct, as the main difference between hedge and mutual funds is that hedge funds can engage in the activities that you listed, among others, while mutual funds are not allowed to. Hedge funds are thought of as more risky because they can engage in these activities, but this assumption does not apply to every fund. In fact, some funds engage in activities which are less risky than the average mutual fund, as the historical function of a hedge fund was to make strategic investments in an attempt to limit risk. However, this got distorted and most people now think of highly risky investments when they think of hedge funds. Just some thoughts, I hope they were what you were looking for.Best of luck!Brendan Prewitt

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