Hedge funds

Last updated: 1 September 2026

Hedge funds are managed investments that can use complex investment strategies.

What is a hedge fund?

A hedge fund is a type of managed investment fund. It pools money from investors and a fund manager chooses what to invest in.  

Hedge funds can invest in shares, bonds, currencies, commodities and other assets. They might even invest in other hedge funds. They may also hold investments that do not trade on public markets.  

Investment strategies and structures are typically more complex than other managed funds.

Hedge funds may use derivatives, alternative investments or leverage in domestic and international markets.

Some hedge funds aim to deliver positive returns in both rising and falling markets. Other hedge funds aim to outperform a benchmark, such as a market index or interest rate. Hedge funds may also aim to achieve a benchmark return with less volatility. 

Hedge funds are complex investments and risks vary.  

Read the product disclosure statement (PDS) and consider getting financial advice before you invest. 

How hedge funds invest

Hedge funds use a wide variety and combination of tools to invest and manage risk. These tools can increase fees. 

Common tools include: 

Leverage – borrowing money or using financial products to increase investment exposure.  

Derivatives – using contracts whose value depends on an underlying asset such as a share, commodity or index. These can be used to manage risk, gain or reduce exposure to assets, markets or events, or create leverage.

Short selling – borrowing and then selling an investment they expect to fall in value. The aim is to buy it back at a lower price and return it to the lender. However, if the price rises, the fund can make a loss. 

Benefits and risks of investing in hedge funds 

Possible benefits  

• Targeted strategies – hedge funds offer a wide variety of investment strategies. Some of the strategies might suit your investing plans.  
• Diversification – hedge funds can provide exposure to investments that move differently to shares, bonds and cash. This can reduce the effect of a move in one direction on the overall value of your portfolio. 

Risks  

•  Leverage risk – leverage can increase the exposure of the fund beyond the money invested. If markets move against the fund’s position, losses can be magnified. 
• Liquidity risk – the fund may not be able to sell an investment quickly or near its stated value.  The fund  may not be able to exit from the underlying assets quickly. This can make it harder to get your money back at short notice. 
•  Complex structure risk – it can be hard to work out how the fund invests your money and what risks you are taking. 
•  Counterparty risk – a fund may enter a derivative contract with another party. If that party fails to honour the agreement, the fund may lose money. 

What to check before you invest in hedge funds 

Hedge funds are complicated investments and it is important to read the product disclosure statement. The PDS will set out the features, benefits, costs and risks of the fund.  

Hedge funds should provide you with information about: 

chevron_right The investment strategy – the types of assets the fund expects to hold and how it aims to produce investment returns 

chevron_right The investment managers – who makes investment decisions and what qualifications and experience they have  

chevron_right The structure – the organisations involved in the fund, their roles and how money flows between them 

chevron_right Valuation, location and custody of assets – how the fund values its investments and who values assets that are not publicly traded, where the assets are located and who holds them  

chevron_right Liquidity – how easily the fund can sell investments at their stated value 

chevron_right Leverage – when and how the fund uses leverage, who provides it and how it may affect returns and losses 

chevron_right Derivatives – how and why the fund uses derivatives 

chevron_right Short selling – how and why the fund uses short selling and how it intends to manage risks  

chevron_right Withdrawals – when and how you can withdraw and whether there will be withdrawal conditions  

Stop, consider the risks, and seek advice 

This page covers the basics of hedge funds, which are complex financial products. 

Consider seeking independent financial advice before you invest and learn more about how to invest.