Hedge funds pool investors' money in an effort to make a positive return on investments. Hedge funds are not required to register with or submit reports to the Securities and Exchange Commission (SEC) and typically only issue securities through private offerings.

Hedge fund investors fall into two major categories: accredited investors and qualified purchasers. An accredited investor has a net worth of more than one million dollars (there are additional categories of accredited investors). A qualified purchaser has five million dollars in investments, not including a primary residence or business property. Hedge fund managers will accept up to 35 investors who do not fall into the accredited investors and qualified purchasers groups. However, it is very difficult to participate in this manner unless an investor knows the hedge fund manager personally.

Hedge fund managers are legally required to ask an interested investor if he meets the investing requirements. This is usually fulfilled by asking potential clients to fill out a lengthy questionnaire detailing their net worth and assets. The typical minimum hedge fund investment is $500,000. Bigger funds with a successful track record may require a much higher initial investment.

If an investor meets the investment requirements and wants to pursue investing in a hedge fund, he should be aware of and be comfortable with the risky investments within the fund, including leveraging and betting on currency moves. An investor should also make sure that the hedge fund is a solid fund and that the manager is reputable. It is generally a good sign if a hedge fund holds its assets with a third-party broker and if it is also being audited by a reliable auditor on an annual basis.

For additional information regarding hedge funds, read the Forbes article “Hedge Fund Investing 101” at http://www.forbes.com/2000/07/15/feat_print.html or visit the SEC Web site’s page on hedge funds at http://www.sec.gov/answers/hedge.htm.