Hedge Fund vs Managed Fund – Difference and Comparison

What is Hedge Fund?

A form of investment fund known as a hedge fund employs a variety of methods to provide profits for its investors. These strategies may include leveraging, short selling, and investing in a diverse range of assets such as stocks, bonds, and derivatives. Hedge funds are structured as private partnerships and are open to a limited number of investors who meet certain eligibility requirements.

One of the main characteristics of hedge funds is their use of sophisticated investment strategies, which often involve taking positions in assets that are not correlated to traditional markets. This allows hedge fund managers to generate returns in a range of market conditions, including periods of market volatility. However, the use of these strategies also carries a higher level of risk compared to traditional investments.

Hedge funds have grown in popularity in recent decades due to their potential to generate high returns for investors. However, they are not without controversy, as some have been criticized for their high fees and lack of transparency. Despite these criticisms, hedge funds continue to be a significant force in the world of finance, with many major institutional investors allocating a portion of their portfolios to hedge funds.

What is Managed Fund?

A managed fund is a particular kind of investment option that pools money from a number of participants and invests it in a range of financial products. The fund is managed by professional asset managers who are responsible for choosing the underlying investments, monitoring their performance, and making any necessary adjustments to the portfolio.

Managed funds can be classified according to their investment objective, such as growth, income, or balanced. Growth funds seek to maximize capital appreciation by investing in stocks or other high-risk assets. Income funds aim to generate regular income streams through investments in fixed-income securities, such as bonds and dividends.

Managed funds must inform investors about their investment objectives, strategies, and risks since they are subject to regulation by financial authorities. However, managed funds are not without risks, as the value of the fund’s investments can fluctuate due to market conditions and other factors. Managed funds offer investors several benefits, including diversification and professional management.

Difference Between Hedge Fund and Managed Fund

  1. A hedge fund employs more aggressive investment strategies, such as short selling and leverage, in an attempt to generate higher returns, whereas a managed fund generally follows more traditional, long-term investment strategies, such as purchasing a diversified portfolio.
  2. Hedge funds are open only to accredited investors, meaning they have a high net worth or professional status, whereas managed funds are available to any investor.
  3. Hedge funds are more expensive for investors, with higher management fees and performance-based incentives for the fund manager, whereas managed funds generally have lower fees and do not offer performance-based incentives to the fund manager.
  4. Hedge funds often have a greater level of risk and volatility due to their more aggressive investment strategies, whereas managed funds tend to be more conservative, with lower levels of risk and volatility.
  5. Hedge funds are not required to disclose as much information to the public as managed funds, which must disclose their holdings and investment strategies, whereas this lack of transparency can make it more difficult for investors to understand the risks and returns of a hedge fund.

Comparison Between Hedge Fund and Managed Fund

Parameters of ComparisonHedge FundManaged Fund
Investment StrategiesAggressiveTraditional
AvailabilityAccredited InvestorsAll Investors
CostExpensiveLess Expensive  
Risk FactorsMoreLess
RequirementEasy & SimpleComplex

References

  1. https://jpm.pm-research.com/content/28/1/6.short
  2. https://link.springer.com/article/10.1007/s11156-007-0061-8