Hedge funds can require initial investments that are quite large. This may be somewhere between $250,000 to $10,000,000.
They will generally only accept Accredited Investors, meaning high net worth individuals that pass SEC standards which exempt the fund from some reporting and disclosure requirements. While the minimum investment varies, most Hedge Funds will accept only so-called accredited investors.
According to the Security and Exchange Commission’s (SEC) definition, an accredited investor is a person with an Individual Net Worth (or joint net worth) of $1 million. Some hedge funds may instead use the Qualified Buyer definition, in which an investor must have an investment portfolio of $5 million or more.
These criteria are part of the requirements hedge funds must fulfill to be categorized as private funds by the SEC. The initial investment can range from $250,000 to $1 million, but don’t be surprised to see a hedge fund with a $10 million minimum.
There are many successful hedge funds which are closed to new investors, since their filing/exemption status will not allow them to take additional funds. Many times, you are only able to invest with such a fund if someone leaves it.
A word of caution: some hedge funds use that as a gimmick. In general, though, they are open-ended funds.
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