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A Primer on Hedge Funds – Roland Lorenzo, with Credit Suisse First Boston, explains hedge funds.

Roland Lorenzo

Hedge funds have been discussed in the media more often recently, creating some questions concerning what constitutes such a fund. However, at their most basic, hedge funds are portfolios that include a range of investments and strategies in order to reduce risk. Thus, the name is taken from the phrase “hedging bets.”

Unlike mutual funds, which also contain diversified portfolios, hedge funds are relatively lightly regulated. As a result, only qualified investors and purchasers may participate in them. Qualifications for investors include a variety of minimum income and pre-existing investment requirements. Two basic categories of private investors include those with a net worth exceeding $1 million and those whose investments exceed $5 million, excluding certain property.

Hedge funds typically do not publicize their individual investment moves. However, the funds generally trade stock options, bonds, or undervalued securities among their primary investment strategies. Thus, hedge funds can be a strong financial…

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