Most hedge fund investors are high net worth individualsor institutional investors, such as endowments, insurance companies, and pension funds. Other participants are hedge fund index funds that buy the hedge funds in a particular index in an attempt to replicate the index performance, and funds of funds that invest in a portfolio of hedge funds to provide a wider circle of investors with access to hedge fund returns. Accredited individual investors are still in the majority, but much of the new investment money is from institutions.
Among other things, these investors are comfortable with the lock-up periods of at least one year and sometimes as long as three years or more that most hedge funds require. During a lock-up period, limited partners aren't able to cash out regardless of the performance of the hedge fund and they may not realize any return on their capital.
Individuals and institutions invest for essentially the same reasons.
Because, based on past performance, they hope for substantial returns
All investors may not be equal
Some hedge fund investors may qualify for preferential treatment. Using their financial clout, the biggest investors in many funds secure what are called side letters from managers, which may allow, among other things, shorter lock-up periods, lower fees, and more transparency, or information about the fund’s investments.
Among other things, these investors are comfortable with the lock-up periods of at least one year and sometimes as long as three years or more that most hedge funds require. During a lock-up period, limited partners aren't able to cash out regardless of the performance of the hedge fund and they may not realize any return on their capital. 