Initially, the investor profiles of both the funds may look similar, but there are several differences between hedge funds and private equity funds.
They both tend to offer high net worth to individuals that are set as limited partnerships. They also pay the management fees along with a profit percentage.
The key differences of hedge fund and private equity fund are given as follows,
· Hedge fund is usually focused on liquid assets that investors can cash out investments in their fund when they want.
On the other hand, the private equity fund is focused on a long-term requirement, where the investors are committed to their funds for a certain period of time. The time period can be from three to five years, or even from seven to ten years, as well.
· There is the risk of investment in both hedge funds and private equity funds. They both practice higher-risk investment that leads to safer investments. Hedge funds focus on achieving the maximum short-term profit that ends up accepting a higher risk option.
· Both hedge funds and private equity funds need large balances that start from $100,000 to millions of dollars or more. Hedge funds lock the funds for a certain period of a few months to years and disallow investors to withdraw their money until the time is passed.
This period allows the investors to allocate their investments in a strategy and it takes some time.
The private equity funds, on the other hand, takes three to ten years. This is because its investment is less liquid, which requires a long time for the company to be invested for a turnaround.
· Hedge funds are usually open-ended that investors can easily add or redeem shares in their investment at any time they want.
However, private equity funds are closed-ended. The investors cannot add or redeem money once they invest and the initial period is not expired.
There is expense allocation software for hedge funds and private equity funds that help each client to save hundreds to thousands of dollars each year.
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