Appeal to high-net-worth individuals, a traditional structure of limited partnerships, and the payment of basic management fees plus a percentage of profits to managing partners. Although their investor profiles are frequently similar, there are significant differences in the aims and types of investments sought by hedge funds and private equity funds.
Table Summary
| Hedge Fund | Private Equity Fund |
| Investments can be cashed out at any time. | Cashouts are only available after a period, usually between three to ten years. |
| The risk is very high. | It is less risky |
| The lock-up period ranges from a few months to a year. | The lock-up period can be up to seven years. |
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Definitions
Hedge Funds are alternative investments that aggregating funds make from investors to generate significant returns. Hedge funds are simply another term for investment partnerships. Although the risk is always present, it is determined by the return. Hedge funds are not regulated by the Securities and Exchange Commission and can be utilized for various securities. Most hedge funds are designed to invest in highly liquid assets using Long-Short strategies.
Private equity funds generally invest in private enterprises, although they occasionally aim to acquire a controlling stake in publicly listed corporations through stock acquisitions. Through leveraged buyouts, the acquisitions are aimed at financially challenged enterprises. Private equity funds typically include, in addition to the fund manager, a staff of business professionals who might be appointed to manage the purchased company to fulfill their goals.
Hedge Funds VS Private Equity Funds
Most hedge funds are open-ended, meaning investors can add or redeem their shares anytime. On the other hand, private equity funds are closed-ended, meaning additional investments can’t be made after some time. This also applies to the time investors can access their monies, ranging from three to ten years. Also, making a profit with hedge funds entails taking on more risk than private equity firms.