Hedge Fund

Beyond the basic pooled-fund concept, a hedge fund is structured as a private limited partnership: a general partner runs the strategy and takes fees, while limited partners supply capital and have no say in day-to-day decisions. Access is restricted to accredited investors or institutional investors under securities exemptions such as the U.S. Regulation D, which lets funds skip the disclosure and daily-redemption rules that apply to mutual funds and ETFs in exchange for lighter public oversight.

Compensation traditionally follows the "2 and 20" model: a 2% annual management fee on assets, plus a 20% cut of profits above a hurdle rate, though fee compression has pushed many newer funds toward lower structures. Investors typically accept lock-up periods of a year or more and limited redemption windows, since strategies like arbitrage or illiquid positions need time to play out.

Crypto hedge funds adapt these mechanics to digital assets. Common approaches include quantitative and market-neutral trading across spot and derivative markets, yield farming and liquidity provision in DeFi protocols, market making, and early-stage token investing that blends hedge fund and venture financing. Firms such as Pantera Capital, Polychain Capital, and Galaxy Digital have grown into multi-billion-dollar managers, though most crypto funds remain small, and the sector still trails traditional hedge funds in total assets under management.

Because crypto hedge funds combine leverage, smart-contract exposure, and volatile, thinly regulated markets, they carry higher operational and counterparty risk than most traditional funds, making thorough due diligence essential before committing capital.