Hedge Funds Structure and Organization

Summary

This practice note provides an overview of the structure and organization of hedge funds (HFs). While the basic characteristics of HFs remain consistent across asset classes and strategies, this practice note pertains in particular to a long/short equity fund (i.e., a HF whose primary strategy is buying and/or selling publicly traded equity securities). HFs are pooled investment vehicles that pursue absolute returns for their investors, regardless of market direction. HFs employ a variety of strategies to achieve their targeted returns, most prominently leverage and/or short selling. A HF may focus on a single strategy or a particular asset class, or in the case of a multi-strategy fund, it may pursue a variety of related or unrelated approaches. The amount of capital in HFs has grown rapidly over the past few decades, and HFs are now widely recognized as playing an important role in the global securities markets.