Over the past few years, hedge funds have drastically increased in popularity. They are somewhat similar to mutual funds in that they are a collection of stocks, but that is about where the similarities end. Hedge funds are known for taking riskier actions, such as a large amount of shorting or borrowed money to increase returns. In order to “protect” the average investor, hedge funds are limited to wealthy investors by law, as its assumed that anyone with that amount of money would understand the risk involved.

However, it will soon be possible for anyone with $2000 to invest in the Man Group hedge fund. The Man Dual Absolute Return Fund will be listed on the NYSE in September, allowing your everyday investor to get a taste for the gains – and losses – a hedge fund can afford.

Besides their risky strategies, hedge funds are also well known for how the fund manager is paid. A typical hedge fund manager is paid two percent of assets as their fee, plus an additional 20 percent of the profit. Supporters say this greatly increases the drive for a hedge fund manager to make money, as he will see a large percentage of those profits.

Unfortunately, the main goal for hedge fund managers instead often revolves around getting as many assets as possible under your control. This puts hedge fund managers in a win-win situation: If they get great profits, they share in 20% of that. If they don’t, they still get 2%, which for most hedge funds is a huge amount of money.

This makes hedge funds a very risky investment, which is why they were off limits to your average investor. From what I have read, investing in the hedge fund stock is not the same as investing in the hedge fund, but it still looks to involve similar amounts of risk and reward.

For an interesting look at the inner workings of a hedge fund, check out Jim Cramer’s book Confessions of a Street Addict.