Common use of Hedge Funds Clause in Contracts

Hedge Funds. Hedge funds are designed to yield a positive return on investment regardless of market developments or with a low sensitivity to them, via particularly complex high risk investment strategies intended to capitalize on the return-to-risk ratio. These investments include the use of arbitrage and/or derivative products to make a profit and not to offset risk, the use of short selling and the leverage of managed funds through loans. Hedge funds provide limited scope for liquidation of the investment on a monthly, quarterly or even yearly basis, and the period of an investor’s “holding requirement” is determined accordingly. Moreover, hedge funds may include investments that are hard to liquidate or hard to value. Hedge funds are exposed mainly to market risk, under regulation risk, concentration risk, as well as leverage risk resulting from the derivatives included in the fund.