What is a hedge fund? and what is a privite equity firm? What do they do?

Question

thanks

Answer 1

Hedge funds are supposed to use derivatives and other instruments to manage risk. Unfortunately, some of them go further than this to take positions which amount to gambling. One example of this might be selling coffee that you don't own in the hope of buying it back later at a lower rate. This can also be applied to shares or oil, when there is no underlying asset to protect. This is when it becomes gambling. It is said that positions taken are three times greater in monetary terms than the underlying assets that they are supposed to  be predicated upon.

Private Equity firms provide finance to new companies to help them grow or expand, or to provide them with expertise. The investors are shrewd knowledgable people who will usually take a stake in the company in exchange for providing it with funds. It is not unlike 'Dragons Den'.

Answer 2

To be precise and concise...

hedge funds - are high rist investment funds who usually deal with futures and cfds, thus on margin. There're rumours that some of them do some insider trading.

private equity farms are more professional. they mainly look for troubled companies that they think they can turn around. The main criterion for a buy is a strong balance sheet. Basically, they just like normal investors but instead of buying shares (share of company) they buy all the shares as they don't wanna share the profit with others.

Answer 3

Agreed. I wrote on how some areas of the private equity and hedge fund industries are converging within my blog here: http://richard-wilson.blogspot.com/2007/...

- Richard Wilson

Hedge Fund Group (HFG)