This practice note discusses the key differences between hedge fund and hybrid fund structures, and the factors that fund sponsors and their counsel should consider when evaluating the type of fund structure and strategy to pursue.

Traditional Hedge Fund Terms -

The term “hedge fund” has been used for decades to describe private, professionally managed investment funds. The traditional hedge fund was based on a “long/short equities” model, taking long positions in stocks thought to be “underpriced” and taking short positions in stocks thought to be “overpriced.” Other common investment strategies include market neutral, event-driven, credit, and global macro. A hedge fund is generally open-ended, in that it permits periodic subscriptions and redemptions at net asset value, has an indefinite life, and pays the investment adviser an asset-based management fee and performance-based compensation. Where hedge funds found themselves holding illiquid assets, or managers came across the occasional illiquid investment opportunity, hedge fund managers were able to create “side pockets” to hold these assets and investments outside the larger liquid fund structure.

Originally Published in "Hedge or Hybrid? Terms and Structuring Considerations," Practical Guidance - April 2022.