We Know: How Hedge Funds Work
What are hedge funds?
Hedge funds are similar to mutual funds because they pool investors' money to make a positive return. They differ from mutual funds because they are not required to register with the SEC, making them subject to very few regulatory controls. Hedge funds have generally been available solely to wealthy, accredited investors and large institutions because minimum investments start at 1 million dollars. Hedge fund managers have recently been required to register with the SEC as investment advisers under the Investment Advisers Act by February 1, 2006.
What are funds of hedge funds?
A fund of hedge funds is an investment company that invests in hedge funds, rather than investing in individual securities. Some funds of hedge funds register their securities with the SEC. These funds of hedge funds must provide investors with a prospectus and must file certain reports quarterly with the SEC. These funds are available to less wealthy investors with investment minimums as low as $25,000.
What information should I seek if I am considering investing in a hedge fund or a fund of hedge funds?
What protections do I have if I purchase a hedge fund?
Hedge fund investors do not receive all of the federal and state law protections that commonly apply to most registered investments. However, the SEC can take action against a hedge fund that defrauds investors. Ponzi schemes are a common method of misrepresentation used by hedge fund managers.
What should I do if I have a complaint about a hedge fund or a fund of hedge funds?
If you encounter a problem with your hedge fund or fund of hedge funds, contact the Securities and Exchange Commission.