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Here's a summary of what Wikipedia says about hedge funds. There's a lot more on their page (linked to the left). A hedge fund generally refers to a relatively unregulated investment fund, often a partnership rather than a corporation in form, and characterized by unconventional strategies (i.e., strategies other than investing long only in bonds, equities or money markets). While most of today's hedge funds still trade stocks both long and short, many do not trade stocks at all. For U.S.-based managers and investors, hedge funds are simply structured as limited partnerships or limited liability companies. The hedge fund manager is the general partner or manager and the investors are the limited partners or members. The funds are pooled together in the partnership or company and the general partner or manager makes all the investment decisions based on the strategy it outlined in the offering documents. In return for managing these funds, the hedge fund manager will receive a management fee and an incentive fee, with the management fee being a fee computed as a percentage of assets under management and the incentive fee computed as a percentage of profits of a "high water mark". The fee structures of hedge funds vary but typically the management fee ranges from 1-2% of the assets under management and an incentive fee that is usually 20% of the profits of the fund and can include "hurdles" or other items. Certain highly regarded managers demand higher fees. For example, Steven Cohen's SAC Capital Management charges a 50% incentive fee (but no management fee) and Jim Simon's Renaissance Technologies Corp. charges a 5% management fee and a 44% incentive fee. Offshore hedge funds are usually domiciled in a tax haven and are designed for U.S.-based hedge fund managers to manage the assets of foreign investors and tax exempt U.S. investors. In this structure, the manager will receive a management and incentive fee and will also be invested in the fund as an investment manager. The typical hedge fund asset management firm includes both the domestic U.S. hedge fund and the offshore hedge fund. This allows hedge fund managers to attract capital from all over the world. Both funds will trade 'Pari passu' based on the strategy outlined in the offering documents.

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Q: Does a Hedge Fund Manager's incentive compensation get paid only if the profits are realized and not just increases in appraised values that are not yet realized?
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