Hedge Fund Management

The US hedge fund industry includes about 9,000 companies with combined annual revenue of $60 billion. Large hedge funds include Citadel Investment Group, D.E. Shaw, Fortress Investment Group, and Soros Fund Management. Almost all hedge funds are private companies. The industry is fragmented, as large size is often an impediment to high investment returns.

COMPETITIVE LANDSCAPE

Demand for hedge fund services is driven by the growth of investment capital managed by institutional investors. The profitability of individual funds depends on investment expertise. Large funds can more easily participate in big financial transactions. Small funds can compete effectively through specialized investment strategies. The industry is highly automated.

Hedge funds are unregulated investment pools that, unlike mutual funds, can engage in a wide variety of investment activities. Hedge funds are typically organized, marketed, and operated by an individual or institution that also serves as the fund's investment adviser.

PRODUCTS, OPERATIONS & TECHNOLOGY

Hedge funds operate much like mutual funds, but are also able to trade financial derivatives and to take "short" positions. In contrast, mutual funds can own only registered securities such as stocks and bonds. Hedge funds typically specialize in a particular type of investing, such as stocks, bonds, commodities, futures contracts, distressed securities, mergers and acquisitions, arbitrage, or investing in other funds.

The daily operations of a hedge fund depend on the particular investment strategy it follows. Funds that specialize in arbitrage may use computer programs to automatically ...