Products & RisksQuestion 55 of 125
An accredited or sophisticated investor is often required for a hedge fund because hedge funds:
a.Are guaranteed by the federal government
b.Are the same as money market funds
c.Are typically sold as private placements with limited liquidity, leverage, and higher risk
d.Must distribute all income annually by law
Explanation
Hedge funds are generally offered as private placements to accredited or qualified investors, use strategies involving leverage, derivatives, and illiquid holdings, and impose lock-up and redemption restrictions. Their higher risk and limited regulation make suitability and investor qualification especially important.
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