Hedge Fund - over the years this definition has been expanded upon, misinterpreted and millions of pages have been written about them, even though 20 years ago hardly anyone new anything about them.
Most authorities on the subject would agree on the following explanation. During the 1940's and 1950's when limited partnerships were set up with investors they came under certain exemptions and did not have to register with the SEC under the Investment Company Act of 1940. All mutual funds must register, but certain investment companies did not have to register if they were exempt under certain provisions of the Investment Company Act of 1940 and the state laws of the state in which they had offices. Some early funds went long on undervalued stocks and short on overvalued stocks in a way "hedging" their investment portfolio. The term market-neutral strategy also became popular and is a very popular strategy used my hedge funds today.
Many funds today, however, are not really hedged at all. It’s just that the term became so popular that it stuck and now everyone uses it and hardly anyone uses the term "investment company".
Based on the above explanation, the same holds true for the term "Hedge Fund Manager" which really is the same as an "Investment Adviser", since none of the regulations talk about Hedge Fund Managers. If you look at the various state securities regulations, you aren't going to find anything since most of the state regulations somewhat mirror the federal regulations. While most funds can come under one exemption or another and therefore are not required to register, the same is not true for managers. Many mangers/advisers must register at the state or federal level because they do not qualify for one of the several exemptions available to managers/advisers.
There are many different strategies used by hedge funds, and each year new ones seem to evolve. These strategies include but are not limited to: activist, long-short, long-short market neutral, special situations, long only, contrarian, emerging markets, futures, convertible arbitrage, bonds, opportunistic, distressed equity, macroeconomic, multi-strategy, fund of funds and many more. Websites and data reporting sources have their own definitions and categories, that sometimes makes matters a little confusing.
For example, LeadDog Capital L.P. can be considered a Special Situations or PIPE Fund because it tends to make investments in companies based on a special situation or special relationship in microcap companies through private placement investments in convertible securities (such as convertible debentures, convertible preferred stock and warrants). Some may even consider this a Convertible Arbitrage Fund. If LeadDog were to diversify its investments into several other strategies such as long-short market neutral, distressed equities and long only, then it might then be considered a multi-strategy fund.
