What's the difference between a hedge fund and a PE fund?

I'm working at a new fund (real estate) but they don't behave like a typical RE PE fund. They purchase sometimes for the short term (a few mths) and sometimes for the long term.

So.i guess my question is when is a hedge fund a hedge fund and when is a PE firm a PE firm? Are there hard and fast rules?

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Sep 12, 2021 - 6:56pm

Private equity funds are highly related to "leveraged buyouts" and "growth equity." It's basically your typical LBO shop and then on the growth equity side, it's a hybrid model between venture capital and typical private equity. You're typically buying an asset with a lot of debt to get leveraged returns. RE PE is RE PE because they buy real estate assets using a leveraged buyout model.

Hedge funds have two definitions in my mind: 1) a legal structure that's typified by a bunch of limited partners giving money to a general partner who manages the money and tries to make a profit (Warren Buffett had a fund like this in the 60s), 2) a fund that has actually hedged positions, such as calls being offset by puts or longs being offset by shorts (delta-neutral trading strategies live here). The first type of hedge funds tend to have "high concentration," that is, they generally own fewer than 20 companies, and they do "deep dives" or intense research into their investments. The second type of hedge funds tends to hire "quants," who are people that are highly advanced in statistics, mathematics, and computer science.

Your shop is still RE PE despite the short holding period. It likely just focuses on distressed acquisitions, "repositions," and short-term "value-add" strategies. They do rapid turnarounds by implementing new income opportunities or managing the properties more effectively, then sell the property once it's "stabilized."

Sep 12, 2021 - 7:13pm

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