What is a Hedge Fund?

A hedge fund is an aggressively managed portfolio of investments that uses advanced strategies to attempt to achieve high returns. These investment portfolios can be long the market (meaning that they make money when the market goes up) or short the market (meaning that they make money when the market goes down). They can also use leverage and derivative investments. This is what can make them extremely aggressive and volatile.

Leverage means to use various financial instruments or borrowed capital, such as margin, to increase the potential return on an investment. The more money a fund borrows, the more highly leveraged it is.

Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1000 to invest. This amount could be used to buy 100 shares of GE (at $10 per share). To increase your leverage, you could invest that same $1000 in 5 options contracts. You would then control 500 shares of GE instead of 100. This is one way that these funds attempt to make higher returns for people.

The Top 25 Hedge Fund Firms (as of 4/23/09)

1. Bridgewater Associates $38.6 billion
2. JPMorgan Asset Management $32.9 billion
2. Paulson & Co. $29 billion
4. D.E. Shaw & Co. $28.6 billion
5. Brevan Howard Asset Management $26.8 billion
6. Man Investments $24.4 billion
7. Och-Ziff Capital Management $22.1 billion
8. Soros Fund Management $21 billion
9. Goldman Sachs Asset Management $20.6 billion
10. Farallon Capital Management $20 billion
10. Renaissance Technologies $20 billion
12. Barclays Global Investors $17 billion
13. Baupost Group $16.8 billion
14. BlueBay Asset Management $16.7 billion
15. Moore Capital Management $16.5 billion
16. Avenue Capital Group $16.2 billion
17. King Street Capital Management $15.9 billion
18. Angelo Gordon & Co. $14 billion
19. Fortress Investment Group $13.7 billion
20. BlueCrest Capital Management $13.3 billion
21 Lone Pine Capital $13 billion
22 Elliott Management $12.8 billion
23 Winton Capital Management $12.4 billion
24 Eton Park Capital Management $12 billion
24 Lansdowne Partners $12 billion
24 SAC Capital Advisors $12 billion

source: Alpha magazine

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