Globally there are about 13,000 hedge funds and about 70,000 mutual funds with similarities and differences between them.
When our Fund launched in 2001 there were about 3500 hedge funds world-wide. The hedge fund industry is one with high turnover.
- Both invest pools of money invested by a number of investors.
- Both provide little transparency into the portfolio
- Both charge investors management fees and operating expenses.
- Hedge funds on average are smaller than mutual funds so hedge fund managers do not have to dig as deeply for good investment ideas.
- Hedge funds tend to have more concentrated portfolios, i.e. fewer invested positions.
- Hedge funds may employ a range of investment tools including options, leverage and shorts. Mutual funds tend to invest on the long side primarily without extensively using other tools.
- The number of investors in a hedge fund are limited to no more than 100 or no more than 500 depending upon the financial strength of the investors. Mutual funds essentially can have an unlimited number of investors.
- Hedge funds have high minimum investment requirements, i.e. typically starting at $1 million or more. Mutual funds in essence have no meaningful; minimum investment requirement.
- Hedge funds have lock-up periods typically of at least one year. Some lock-ups are much longer. That is, each investment must remain in the hedge fund for at least a year (the lock-up-period). Withdrawals are permitted with advance notice following the lock-up period. In difficult market periods some hedge funds put up “gates” that restrict redemptions. Investments in mutual funds are essentially liquid and not impacted by lock-ups or “gates.”.
- The founder of a hedge fund is the General Partner and an investor in his/her own fund. The manager of a mutual fund is seldom the owner and may not be a significant fund investor.
- Hedge fund managers receive a performance fee at the end of the year paid from investors’ gains. Mutual funds typically do not charge performance fees.
- Hedge funds are less regulated than mutual funds and have their marketing efforts limited. Mutual funds can aggressively market themselves.