That pretty much sums it up.
2007-02-18 05:40:07 · 2 answers · asked by gfierros1 1 in Business & Finance ➔ Investing
Hedge funds aren't like regular mutual funds.
They rely on Derivitives to hedge their bets on investments, and to make up for the hedge costs, they over leverage a lot of investments.
If a trade goes against them, they lose big time.
Quite often when they have a losing streak, they try to recover by making more risky trades, Short selling, futures, or options. and if this fails it is easy to go out of business.
This is why in the US and Canada, you have to be a high wealth , sophisticated investor to legally be sold these funds.
2007-02-18 05:57:19 · answer #1 · answered by bob shark 7 · 1⤊ 0⤋
Sadly there are two definitions of hedge funds. One involves calls and puts and the other involves mostly off shore investment schemes by the rich to avoid taxes.
Since I don't know which trm you mean, greed and panic is the two major destroyers of any fund and I think it was over oil this time. Oil prices are about half of what they were just a year ago. The real estate "crash" probably caught some more funds.
2007-02-18 21:37:09 · answer #2 · answered by gregory_dittman 7 · 0⤊ 0⤋