Hedge funds

According to ACAMS International Glossary of Key Money Laundering Terms and Acronyms, the term 'hedge funds' means private, unregulated partnerships of wealthy, supposedly sophisticated investors that contribute funds to a pool that then invests in exot­ic and high-yield/high-risk investment vehicles. The term 'hedge' comes from the types of transac­tions or investments usually made by these funds. For example, a hedge fund may purchase stock of a company slated for acquisition by a second company, then 'hedge' that transaction or bet with a simultaneous purchase of stock in that second company. Hedge funds also invest in other deriva­tive investments, such as futures and options on commodities, stocks, and bonds.

The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. These funds are seen as being vulnerable to money laun­dering and in late 2002 came under proposed anti-money laundering regulations in the United States. In October 2004, the Securities Exchange Commission released a new rule, Rule 203(b)(3)-2 under the Investment Advisers Act, which requires hedge fund investment advisers with 15 or more investors and managing more than $30 million to register with them by February 1, 2006.