What is a hedge fund?
Hedge funds are only available to certain investors. Learn how hedge funds work, who can invest in hedge funds, and why hedge funds are considered risky.
Why are mortgages so expensive in Canada?
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Hedge funds are pooled investment funds sold to institutions and certain individual investors, called accredited investors. There’s no formal accreditation process; “accredited” simply means you meet specific minimum income or net asset ownership requirements set by provincial securities regulators.
For instance: In Ontario, if your income is over $200,000 for two years in a row, or you have net assets of $500,000, you qualify as accredited. Hedge funds are considered risky investments, and securities regulators want to make sure they’re only sold to people who can afford to lose money.
While the term “hedge” refers to hedging, a common risk management technique, not all hedge funds use hedging strategies. The label “hedge fund” has become a catch-all for a wide range of products, most with much higher risk than mainstream mutual funds and exchange-traded funds (ETFs).
Hedge fund fees and commissions are usually higher, and investors may receive less information, as disclosure requirements are lower. Hedge funds often charge performance fees in addition to regular management fees. They’re typically less liquid than other investments, often limiting when you can sell. And you’ll probably wait longer to get your money when you do sell.
Example: “Karthik’s hedge fund used a common fee structure called ‘2 and 20.’ He paid the managers an ongoing fee of 2% of assets plus an additional 20% of any profits they generated above a certain threshold rate.”
Read more about investing:
- Best in show: How to find and invest in market leaders
It makes a lot of sense to invest in time-tested companies and stocks. Here’s how to invest in sector-leading companies in a diversified way. - Compound interest calculator: How to use one and how interest grows
Watch your money grow—or calculate how much money you will owe in total—with the MoneySense compound interest calculator. Here’s how it works. - Are GICs a good investment right now?
GICs can help cushion savings against the impacts of inflation and balance risk in a portfolio. Here’s how GICs work, the types of GICs you can choose from, and how Canadians can buy them. - Investing beyond the numbers: Understanding financial flashpoints
Financial flashpoints are significant emotional events that shape our beliefs and behaviours towards money, ultimately influencing our financial and investment decisions.
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