In the last few years, as the economy has continued its downward spiral, many investors have really taken a beating and lost a great deal of their capital. As a result, many people are nervous about where and how to invest their money and are looking at other ways to make their money work for them. There is also an increased interest about hedge funds to help investors “hedge against” market downturns.

Some people who are new to investing might get mixed up as far as understanding the difference between hedge and mutual funds. Mutual funds are highly regulated by the SEC in the United States, and by other financial governing bodies in other countries. A hedge fund, on the other hand, is more of a private investment vehicle and is very loosely regulated, and these pooled funds are usually limited to a maximum of 100 investors.

Even though there are not many regulations governing these funds, hedge fund managers are not allowed to advertise their funds openly or to solicit investors. Instead, most investors will learn about these funds by word of mouth, through a broker, by reviewing a hedge fund index, or through some association they have with a fund manager.

Some people say that hedge funds are not regulated at all, but this is not quite accurate. While investors do enjoy a much greater degree of freedom in how they operate and how they invest the money in their funds, they still do have some guidelines and regulations they must operate under. These regulations do vary depending on where the operating office of the fund is located. In many instances, the legal location and the physical location of the services are in different places, usually in two different countries.

There are many in the financial industry that believe that hedge fund managers and the funds that they manage control a vast amount of money in the global economy. Some estimate that this amount is in the hundreds of billions, if not trillions, of dollars. However, because there are no annual reports to issue, such as with mutual funds, the reality is that no one knows exactly how much money is invested in them. Some investors are put off by this, but others are intrigued about hedge funds and how they can help them diversify and grow their portfolios.

You can’t be too careful with your money these days. Learn what you need to know to keep it working for you at Managing Personal Finances.