Each episode of financial market volatility draws the attention of government officials and others to the role the hedge fund industry plays in the dynamics of financial markets. Hedge funds are decentralized investment pools, usually organized as private partnerships and often based abroad for tax and regulatory reasons. Paid on a contingent basis, their managers can use various investment techniques, including short positions and leverage, to enhance returns and reduce risk. Hedge funds typically use derivatives (securities such as options, whose value is "derived" from the value of other underlying financial assets such as common stock) in their investment strategies. Still, please do not confuse it with derivatives, which pose other problems.

Hedge funds are a fast-growing segment of the financial industry, but the fact that they operate through private placements and restrict equity ownership to wealthy individuals and institutions limits the disclosure and regulatory requirements that apply to mutual funds and banks. They are excluded from most of the funds domiciled outside of the major financial market countries, which are generally less regulated. If we try to generalize the nature of hedge funds further, we immediately face two problems: First, their investment and fundraising techniques are vastly different, and second, other retail and institutional investors interact in most of the same activities as hedge funds.

Let's see how to start a hedge fund from scratch. For example, consider these people and their ages:

• 1. Warren Buffett: age 25
• 2. Ray Dalio:age 26
• 3. Ken Griffin:age 22

Maybe you know one of them and are thinking to yourself, "But they're all geniuses, and it'll be years before I get close to them." 'I still have a lot to learn!' I'm not saying you should start young, but anyone young and inexperienced can do it. Learn the fundamentals of getting started and get answers to frequently asked questions.

b) Second eye:

Hiring a fund manager allows investors to have an (ideally independent) third party prepare financial statements, calculate fees and investor allocations, and be involved in the financial management process. You can rest assured that you are also involved. One of the most common questions asked in investor due diligence meetings concerns cash management controls, employees authorized to make money transfers, and the number of signatures required to transfer funds. A fund manager is generally involved at some level in the cash management process, and many banking platforms today allow three levels of approval: wire initiator, wire approver, and wire release. Additional oversight by third-party fund managers, an integral part of this process, will undoubtedly reassure investors.