What Is a Private Fund in Investment



A private fund is a type of financial investment company that meets the following criteria of having less than 100 investors or have member investors who have substantial funds elsewhere. This type of funding, referred to as ‘hedge funds’ is usually free from any liabilities and obligations made under federal securities regulations and laws.


Private Funding and Hedge Funding

Hedge funds are different from private equity funds and are counted as alternative investments using pooled funds. They may use a number of differing strategies to earn active return for their investors. Hedge funds can be aggressively managed and make use of derivatives and leverage in domestic and international markets with the aim to generate high returns.

These returns are either in an absolute sense or over a specific market benchmark. Because hedge funds sometimes have very little connection to a traditional portfolio of stocks and bonds, assigning an exposure to hedge funds can be a good diversifier.


Differences Between Private Funds and Private Equity Funds

Like private equity funds, hedge funds appeal to a private fundhigh net worth individuals and many require a minimum investment of 250,000 or more. Traditionally private fund companies are structured as limited partnerships and it involves paying the managing partners basic management fees on top of any percentage profits.

An investment company that covers private funds and hedge funds aim to provide the highest investment return in the shortest amount of time and to achieve this goal, hedge fund investments are first and foremost in highly liquid assets. This enables the fund to make profits quickly on just one investment and then shift funds onto another investment that shows more immediate potential.

These funds can invest in almost anything such as individual stocks (which include short selling and options), commodity funds, bonds, arbitrage, currencies, derivatives and whatever else the manager sees potential in.