What are Hedge Funds?

Why Hedge Funds are in the News (February 2026)?

Hedge funds have been dominating financial headlines recently for three major reasons:

1. Record-Breaking Demand: As of February 2026, hedge funds have become the most sought-after asset class in the world. Recent reports from major banks like Goldman Sachs show that nearly 45% of large investors (like pension funds) plan to increase their hedge fund investments this year—the highest level since 2017.

2. $5 Trillion Milestone: The industry is currently on a massive growth spurt. Total assets under management (AUM) are now on track to hit $5 trillion by 2027. This is driven by “Macro” and “Quant” funds that performed exceptionally well during the market volatility of 2025.

3. Activist Battles: Hedge funds have been making waves by forcing changes at major companies. For instance, in early February 2026, a California-based hedge fund (Donerail Group) made a massive $1.1 billion offer to buy out the yacht company MarineMax after publicly criticizing its management.

What Exactly is a Hedge Fund?

The name comes from the idea of “hedging” your bets—protecting against losses. They are managed by professional “smart money” managers who use tools that regular investors often can’t, such as:

• Short Selling: Betting that a stock’s price will fall.

• Leverage: Borrowing money to make even bigger trades (high risk, high reward).

• Derivatives: Using complex financial contracts (options, futures) to bet on everything from interest rates to the price of oil.

Common Hedge Fund Strategies

The “2 and 20” Rule: Historically, hedge funds were famous for their high fees: a 2% management fee just for holding your money, plus a 20% performance fee on any profits they make for yo