Hedge Fund for Dummies

Figuring out how to invest your money can be a very complicated matter. Joining Chicago Tonight to take a look at the world of hedge fund investing is author of Hedge Funds for Dummies and consulting analyst Annie Logue.  

Photo credit: Lending MemoAnn C. Logue’s “Hedge Funds for Dummies” sets out to tell readers what they need to know about hedge funds in a simple manner, whether the investment is personal, for an endowment, or a foundation. Logue geared the book toward a reader without much pre-existing knowledge of hedge funds—providing straightforward explanations of what a person needs to know. Below is a list of general topics addressed in the book’s first chapter, “What Is a Hedge Fund, Anyway?”

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A Glossary of Hedge Fund Terms

Information taken from “Hedge Funds for Dummies”, by Ann C. Logue

Hedge Fund: A limited partnership, using a range of investment techniques, in hopes of producing large gains


2 and 20 Arrangement: When a fund manager receives an annual fee that’s equal to 2 percent of the assets in the fund and an additional bonus equal to 20 percent of the year’s profits

Absolute-Return Fund (or Non-Directional Fund): Designed to generate a steady return, no matter what the market is doing.

Accredited Investors: Those with a net worth of at least $1 million, or an annual income of $200,000 ($300,000 for a married couple)

Alpha: The return over and above the market rate that results from the manager’s skill or other factors  

Beta: The sensitivity of an investment to the market

Directional Funds: Hedge funds that don’t (or at least not fully) hedge

Due Diligence: Doing homework when buying into a hedge fund—asking the tough questions about who the fund manager is, what she/he plans for the fund’s strategy, and who will be verifying the performance numbers

Fund or Portfolio Manager (PM): The person who organizes the hedge fund and oversees its investment process. She/he might make all investment decisions, or oversee a staff of reliable advisers

Hedging: Reducing risk. An opposing strategy to speculating

Leverage: Hedge funds borrow plenty of money in order to increase returns—a method that can also increase risk. Leverage separates hedge funds from most other types of investments.

Long-Short Investing: Buying shares of stocks expected to go up, while selling short stocks expected to go down—removing much of the risk of the market, creating a fund with steady performance year in and year out

Qualified Investors: Individuals, trust accounts, or institutional funds with at least $5 million in investable assets

Return: A function of risk. Eliminating some risk while gaining return on investments is the challenge for hedge fund managers.

Speculating: The process of seeking a high return by taking on a greater-than-average amount of risk. An opposing strategy to hedging

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