Investor Education
What is a Hedge Fund?
What is a Hedge Fund?
For many entry-level investors, hedge funds are shrouded in mystery and exclusivity.
It’s common, for example, for media coverage to focus on the ultra-wealthy founders and CEOs of hedge funds, such as Ray Dalio or Bill Ackman, as well as their secretive investing strategies or exclusive clientele. Like investment banks, they are seen as an elite fixture on Wall Street, and they also get scapegoated for a variety of market problems ranging from manipulation to a lack of transparency.
However, despite an image of complexity and secrecy, the basics around hedge funds are actually quite easy to understand. Today’s infographic from StocksToTrade.com highlights some of those key points.
Hedge Fund Basics
Hedge funds are generally structured in a similar manner to venture capital funds:
General partner: This partner is in charge of the fund, and invests capital based on the fund’s objectives.
Limited partner: This partner is an investor that supplies some of the capital. It’s worth noting that generally only accredited investors are allowed by the SEC to invest in hedge funds, as they are considered high-risk investments.
With the money from general and limited partners, the fund executes on its investing strategy. Hedge fund strategies can range from trading currencies with extreme leverage to using event-driven tactics such as taking activist positions in companies.
Other hedge funds, such as Renaissance Technologies, are known for their focus on trading using big data, AI, and machine learning – and for taking an outside approach to investing by hiring mathematicians, physicists, or other people with non-financial backgrounds.
It’s most common for hedge funds to use a “two and twenty” fee structure. Limited partners pay a 2% asset management fee, and a 20% cut from any profits generated.
Pros and Cons
Arguably, the biggest benefit of investing in hedge funds stems from the ability to partner with some of the world’s top investment managers, and to generate returns that do not correlate with the market. Hedge funds can help to diversify a portfolio – and when the general market is struggling, hedge funds using the right strategy can still provide a handsome return.
In terms of cons, hedge funds require investors to lock up money for extended periods of time, and also tend to charge significant fees. Lastly, the use of leverage can magnify small losses, and a lack of diversification within a given fund can lead to more concentrated losses, as well.
For more on hedge funds, see 48 key hedge fund terms every investors should know.
Investor Education
Which Climate Metrics Suit Your Investment Goals Best?
When selecting climate metrics, it is important to consider your purpose, the applicability and acceptability of the climate strategy, and the availability of historical data.

Which Climate Metrics Suit Your Investment Goals Best?
According to PwC, 44% of investors believe that companies should prioritize reducing greenhouse gas emissions across their own operations and supply chain.
In this graphic from our sponsor, MSCI, we break down climate metrics and provide valuable insights to help build sustainability-aligned portfolios without the fear of falling for greenwashing.
Essential Climate Metrics for Investors
Here are some widely-used climate metrics, as categorized by MSCI:
Climate Metric | Description | |
---|---|---|
#1 | Carbon Emissions EVIC Intensity | Measures greenhouse gas emissions per $1 million of financing. |
#2 | Potential Carbon Emissions | Estimates emissions from fossil fuel reserves owned by a company. |
#3 | Implied Temperature Rise (ITR) | Assesses alignment with global warming scenarios. |
#4 | Carbon Emissions Revenue Intensity | Quantifies emissions per $1 million of revenue. |
#5 | Fossil Fuel Revenue | Determines revenue percentage from fossil fuel-related activities. |
#6 | Cleantech Revenue | Determines revenue percentage from environmental and climate opportunities. |
#7 | Low Carbon Transition (LCT) Score | Evaluates a company’s exposure to climate transition opportunities. |
#8 | Transition Climate VaR | Assesses costs from carbon pricing and low-carbon opportunities. |
#9 | Physical Climate VaR | Evaluates costs from increased exposure to physical hazards. |
Choosing the Right Metrics
Climate investing requires selecting the right measurement tools. For that, it is important to consider your purpose, the applicability, and acceptability of the climate strategy, and the availability of historical data for analysis, among other factors. The infographic above contains a flowchart designed to guide you through several key questions.
For example, do you want to:
- Measure your portfolio’s impact on the climate or the climate’s impact on your portfolio?
- Analyze present or forward-looking data?
- Assess direct impact or indirect impact via supply chains?
- Evaluate potential future emissions or projected temperature rise?
- Focus on climate risks or opportunities?
MSCI’s climate metrics toolkit can help investors confidently measure, manage, and report their climate risks and opportunities.

Download MSCI’s climate metrics toolkit now.

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