Since June 11, 2025, the First Trust Hedged Strategies Fund has stopped asking buyers to certify that they are accredited investors. Its minimum is 1,000 dollars. The fund is a registered interval fund that owns stakes in private hedge funds, and those hedge funds keep charging performance fees of 15% to 30% of profits on top of their management fees. Counted together, the net annual expenses in the July 2026 prospectus come to 9.30% for the I shares and 10.05% for the A shares.
A hedge fund proper takes money only from wealthy investors and often asks for a minimum of 100,000 dollars to 1 million dollars or more. The same strategies, the same managers and some of the same funds can be bought through registered funds, exchange-traded products and listed shares, starting at the price of a single share. Each of these routes charges a different fee, sets its own exit rules and has its own record.
Why a direct hedge fund stake needs accredited status
A hedge fund stays outside the Investment Company Act of 1940 by limiting who can buy it. It sells its interests in private offerings, which in practice means to accredited investors: 200,000 dollars of income, 300,000 dollars with a spouse, in each of the last two years, or 1 million dollars of net worth excluding the main home. Funds relying on section 3(c)(7) go further and admit only qualified purchasers, who own at least 5 million dollars of investments. If the manager is registered with the SEC and charges a performance fee, each investor must also be a qualified client, with 1.4 million dollars under management or 2.7 million dollars of net worth since June 29, 2026.
Our comparison of hedge funds and mutual funds explains what the 1940 Act allows a registered fund to do and why hedge funds avoid it. Every route below uses a vehicle open to anyone: a registered fund, an ETF or a listed share.
Seven routes into hedge fund exposure, compared
| Route | Example | Entry ticket | Getting money out | Yearly cost of the example |
|---|---|---|---|---|
| Liquid alternative mutual fund | The Merger Fund, Class A | 2,500 | Any business day | 1.55%, plus a sales charge of up to 5.50% |
| Replication ETF | iMGP DBi Managed Futures (DBMF) | One share, about 32 dollars | Exchange hours | 0.85% |
| Interval fund of hedge funds | First Trust Hedged Strategies, I shares | 1,000 | Quarterly offer, 5% of shares | 9.30%, underlying fees included |
| Listed BDC | Ares Capital (ARCC) | One share, about 19 dollars | Exchange hours | Inside the share price |
| Non-traded BDC | Blackstone Private Credit Fund | Set by the fund and the broker | Quarterly, usually capped at 5% | 1.25% plus an income fee |
| Listed manager share | Man Group | One share | Exchange hours | Trading costs only |
| Listed hedge fund | Pershing Square Holdings | One share | Exchange hours, at a discount | 1.5% plus 16% of gains |
Costs and terms are taken from each fund's latest prospectus, fact sheet or annual report, cited in the sections below. Entry tickets are in dollars.
Liquid alternative mutual funds and ETFs
Liquid alternatives are mutual funds and ETFs that run hedge fund strategies inside the 1940 Act: merger arbitrage, trend following, long/short equity, market neutral and multi-manager blends. US alternative funds held about 116 billion dollars at the end of 2025, and investors added more than 15 billion dollars in the second quarter of 2026, a quarterly record. They redeem daily and charge no performance fee, and annual expenses above 1% are common.
In the 2010s, liquid alternative funds gained 1.66% a year on average, the same figure as their median expense ratio. Of 453 liquid alternative funds launched from 2009, only 153 were still open in 2021. Over the 15 years to June 2026, most alternative categories returned less than both a stock portfolio and a 60/40 mix of stocks and bonds, and their lower risk was generally too small to make up for it.
Correlation with stocks and recent results vary widely by Morningstar category:
- Equity hedged and long/short equity funds had correlations of 0.98 and 0.95 with US stocks over the three years before May 2026. A 0.98 correlation means their returns moved almost in step with US stocks.
- Equity market neutral funds returned 8.0% in 2025 with a correlation of about minus 0.18 to stocks.
- Systematic trend funds lagged a US 60/40 portfolio from 2015 through 2021, then led every liquid alternative category in 2022, the year stocks and bonds fell together.
Ten-year returns of three long-running liquid alternative funds
The Merger Fund has run merger arbitrage since January 1989 and had positive returns in 33 of its 37 calendar years. Over the ten years to June 2026 its Class A shares returned 3.98% a year at net asset value, against 2.34% for three-month Treasury bills and 1.54% for the US aggregate bond index. The net expense ratio is 1.55%. Class A shares carry a sales charge of up to 5.50%, which cut the ten-year figure to 3.39% for a buyer who paid it in full, and the minimum is 2,500 dollars.
AQR Managed Futures Strategy Fund follows trends in several hundred futures markets. To August 2026 it returned 4.88% a year over ten years and 14.49% a year over five, against 2.40% and 3.65% for Treasury bills. The I shares show a 3.09% expense ratio, or 1.25% before the costs of short positions and interest. They ask individuals who buy directly for 5 million dollars, with no minimum for accounts opened through a financial adviser.
Blackstone Alternative Multi-Strategy Fund splits its money among 21 sub-advisers in macro, quantitative, credit and equity strategies. Over the ten years to July 2026 it returned 4.36% a year net of fees, against 3.38% for the HFRX Global Hedge Fund Index and 13.28% for the MSCI World index. Gross expenses were 3.77%, and 2.40% after excluding sub-fund, trading and short-selling costs.
Hedged mutual funds as a group have trailed hedge funds that follow similar strategies while beating traditional mutual funds. The gap traces back to hedge funds' lighter regulation and stronger fee incentives.
Hedge fund replication ETFs
A replication ETF owns no hedge fund. It takes the monthly returns of a hedge fund index, estimates which liquid exposures explain them, such as equity, bond, currency and commodity futures, and holds those exposures directly. The idea was tested on 1,610 hedge funds from 1986 to 2005: linear clones captured a large share of the returns for some strategies, were often inferior to the funds they copied, and cost less and showed every position. Out-of-sample tests with more complex models found replicating portfolios systematically inferior to the hedge funds themselves.
- NYLIM Hedge Multi-Strategy Tracker ETF (QAI) aims at the whole hedge fund industry through a basket of other ETFs. From March 2009 to June 2026 it returned 3.64% a year at net asset value, against 6.94% for the Barclay Hedge Fund Index it tracks and 15.28% for the S&P 500. The net expense ratio is 0.88% and assets were 1.02 billion dollars.
- iMGP DBi Managed Futures Strategy ETF (DBMF) targets the pre-fee returns of the largest managed futures hedge funds. From May 2019 to August 2026 it returned 9.31% a year at net asset value, against 5.53% for the SG CTA Index of those funds, which is measured after their fees. It charges 0.85% and held 5.04 billion dollars in September 2026.
Part of DBMF's lead is the fee it avoids: the funds in the SG CTA Index typically charge a management fee and a share of profits, and the ETF copies their returns before those fees. The same mechanics limit the method. A replicator follows the index with a lag and cannot reproduce returns that come from security selection, illiquid holdings or a single manager's skill.
Replication products also close. The iMGP DBi Hedge Strategy ETF, which copied long/short equity hedge funds, was liquidated in September 2024. The Unlimited HFND Multi-Strategy Return Tracker ETF, launched in October 2022, held 38.5 million dollars in September 2026 at a 1.07% expense ratio.
Interval funds and tender offer funds that hold hedge funds
Interval funds and tender offer funds are registered closed-end funds that do not trade on an exchange. You buy at net asset value, and the fund buys shares back at set times. At the end of March 2026 there were 173 interval funds with 156 billion dollars of managed assets and 141 tender offer funds with 116 billion dollars. Most hold private credit, real estate or private equity. A few hold hedge funds.
The two structures differ on the exit:
- An interval fund must offer to repurchase between 5% and 25% of its shares every three, six or twelve months. When requests exceed the offer, each one is cut pro rata, and a repurchase fee of up to 2% is allowed. Our guide to private credit works through what a fourfold oversubscription does to one request.
- A tender offer fund buys back shares only when its board decides to, so no repurchase is guaranteed in any given quarter.
Interval funds carried an average prospectus expense ratio of 2.49% in 2025, against 0.99% for mutual funds and 0.58% for ETFs.
Funds of hedge funds in this wrapper used to be closed to small investors. SEC staff asked any registered fund putting 15% or more of its assets in private funds to sell only to accredited investors with a 25,000 dollar minimum. On August 15, 2025, the staff stopped making that request. First Trust had already dropped the requirement for its Hedged Strategies Fund two months earlier.
- First Trust Hedged Strategies Fund: 1,000 dollar minimum, 1.05% management fee, 7.53% of acquired fund fees from the hedge funds it holds, 9.30% net for I shares and 10.05% for A shares, which also carry a sales charge of up to 4.50%. Its September 2026 repurchase offer covered 5% of its shares.
- AB Multi-Manager Alternative Fund: still sold only to accredited investors, 20,000 dollar minimum, and total expenses of 18.93% in its July 2025 prospectus, of which 17.75% came from the underlying hedge funds.
The acquired fund fee line includes the performance fees the underlying hedge funds took in the prior year, so it rises after strong years and falls after weak ones. A direct investor in the same hedge funds would pay those performance fees too. The registered fund adds its own management fee and operating costs on top.
Business development companies, listed and non-traded
A business development company lends to midsize private companies and must pay out most of its income. It is one of the main routes into private credit for investors who are not accredited. Our private credit guide covers the loans, the leverage limits and the default rates.
Listed BDCs trade all day and at any price the market sets. Ares Capital reported net asset value of 19.35 dollars a share at the end of June 2026 and closed at 19.36 dollars on September 22, 2026. In April 2026, listed BDCs traded at 0.85 times net asset value on average and 0.80 times at the median.
The VanEck BDC Income ETF lists a total expense ratio of 9.69%, of which 9.27% is acquired fund fees. Those are the BDCs' own operating costs and management and incentive fees, which SEC rules require the ETF to show. The BDCs pay these costs from their own income, so they are already reflected in their share prices, and the ETF's own charge is 0.42%.
Non-traded BDCs sell at net asset value and buy back a limited share each quarter. Blackstone's BCRED charges a 1.25% management fee and 12.5% of income above a 5% hurdle. In the first quarter of 2026, requests reached 7.9% of shares and all were met, with Blackstone and its employees buying part of them. In the second quarter, requests reached about 10% of shares and 5% was paid. The third-quarter letter estimated requests at about 4.3 billion dollars, again about 10% of shares, with 5% to be paid.
Blue Owl's OBDC II halted quarterly redemptions in November 2025, after a planned merger with its listed sister fund was terminated. In February 2026 it said it would stop taking redemption requests and return capital through loan sales. Without a repurchase program, holders of a non-traded BDC may wait five to seven years for a liquidity event.
Shares of listed hedge fund managers
Buying a manager's stock makes you a part-owner of the fee business. You earn from assets under management and from performance fees, and the funds' returns reach you only through those fees.
Man Group, listed in London, managed a record 253.6 billion dollars at the end of June 2026. Its core performance fees were 207 million dollars in the first half of 2026, against 67 million dollars a year earlier, and diluted statutory earnings per share rose from 4.4 cents to 17.5 cents.
Pershing Square Inc., Bill Ackman's management company, began trading on the New York Stock Exchange under the ticker PS on April 29, 2026. At the end of June it managed 32.5 billion dollars. Its first-half figures show 111.7 million dollars of management fees and almost no performance fees, because those are booked at the end of December.
Listed managers can also leave the market. Sculptor Capital was bought by Rithm Capital for 12.70 dollars a share and delisted in November 2023.
Hedge fund portfolios listed on a stock exchange
A handful of hedge fund managers run permanent capital in listed closed-end funds. You get the manager's actual portfolio and fee terms for the price of a share. You sell to another investor at the market price, which can sit far below the value of the assets.
- Pershing Square Holdings trades in London. At the end of August 2026 its assets were worth 80.51 dollars a share and the shares traded at 53.60 dollars, a 33.4% discount. The fees are 1.5% a year and 16% of gains above a high-water mark. The discount widened from 24.1% to 34.0% during the first half of 2026.
- Pershing Square USA listed in New York at 50 dollars a share in April 2026, with a 2.0% management fee and no performance fee. Two months later its net asset value was 45.93 dollars and its share price 37.38 dollars. Over that period an IPO buyer lost 25.24% on the share price while the portfolio itself lost 8.15%.
- Greenlight Re is a reinsurer whose investment portfolio is run by David Einhorn's firm, for a 1.5% management fee and a 20% performance allocation. The portfolio returned 7.5% in 2025. A shareholder takes the insurance risk as well as the investment result.
What each route costs on a 10,000 dollar stake
The table converts the latest published expense ratio into dollars for one year. It ignores trading commissions, taxes and bid-ask spreads.
| Fund | Expense ratio | Yearly cost on 10,000 dollars |
|---|---|---|
| Average index equity mutual fund, 2025 | 0.05% | 5 |
| iMGP DBi Managed Futures ETF | 0.85% | 85 |
| NYLIM Hedge Multi-Strategy Tracker ETF | 0.88% | 88 |
| The Merger Fund, Class A | 1.55% | 155, plus up to 550 at purchase |
| AQR Managed Futures Strategy, I shares | 3.09% | 309 |
| Blackstone Alternative Multi-Strategy, I shares | 3.77% | 377 |
| First Trust Hedged Strategies, I shares | 9.30% | 930 |
| VanEck BDC Income ETF | 9.69% | 969, of which 42 charged by the ETF |
Index equity mutual funds charged an asset-weighted average of 0.05% in 2025. The last row costs 194 times the first. Our article on active and passive investing shows how a gap of that size compounds over decades.
Read each expense ratio against what it contains. AQR's 3.09% includes 1.84 points of short-selling and interest costs that come with its strategy. Blackstone's 3.77% includes the fees of third-party funds and trading costs that its 2.40% adjusted figure leaves out. First Trust's 9.30% includes the performance fees paid to the underlying hedge funds.
Hedge fund index assets and returns, 2009 to 2026
The hedge fund industry managed a record 5.6 trillion dollars at the end of June 2026. In 2025 the HFRI Fund Weighted Composite gained 12.6%, its best year since 2009, while the S&P 500 returned 17.9% with dividends. From March 2009 to June 2026, the Barclay Hedge Fund Index returned 6.94% a year and the S&P 500 15.28%.
Both hedge fund indexes are measured after the funds' fees. Over the same period, QAI returned 3.64% a year after its 0.88% fee, against 6.94% for the index it tracks.
Access through 401(k) plans is still under review. Executive Order 14330, signed on August 7, 2025, directed the Labor Department to review its guidance on alternative assets in 401(k) plans. The department published a proposed rule on selecting plan investments on March 31, 2026, and comments closed on June 1, 2026.
Six questions a prospectus answers before you buy
- What is the total expense ratio, and what sits inside it? Look for acquired fund fees, short-selling costs and interest, and a sales charge on the share class you can buy.
- How do you get out? Daily redemption, an exchange listing, a fixed interval repurchase of 5% to 25%, or a tender offer at the board's discretion.
- What does the share price do against net asset value? For a listed fund or BDC, check the current discount and how far it has moved in the past.
- Which Morningstar category is it in, and how closely has it tracked stocks? A correlation near 0.95 means most of the return is stock market exposure.
- How long is the record, and did it include a bad year for the strategy? Two in three liquid alternative funds launched from 2009 had closed by 2021.
- Who can buy the share class you are looking at? Some registered funds still require accredited status, and AQR asks 5 million dollars of individuals buying its I shares directly.
This article is general information, not investment advice.
Questions about investing in hedge funds with a small amount
Can a regular person invest in a hedge fund?
Directly, usually only as an accredited investor, which for an individual means 200,000 dollars of income (300,000 dollars with a spouse) in each of the last two years, or 1 million dollars of net worth excluding the main home. Anyone else can buy registered funds and listed shares that hold hedge fund strategies, hedge fund managers or stakes in hedge funds: liquid alternative mutual funds, replication ETFs, interval funds, listed BDCs and shares of listed managers.
What is the minimum investment for a hedge fund?
Each fund sets its own, and direct stakes often start between 100,000 dollars and 1 million dollars or more. The registered routes start far lower: the price of one ETF or listed share, 1,000 dollars for the First Trust Hedged Strategies Fund, or 2,500 dollars for Class A shares of The Merger Fund. Some registered funds keep high minimums on certain share classes, such as the 5 million dollars AQR asks of individuals buying its Managed Futures Strategy Fund I shares directly.
Can I invest in a hedge fund with 1,000 dollars?
Yes, through a registered fund. Since June 2025 the First Trust Hedged Strategies Fund, an interval fund that owns stakes in hedge funds, has accepted 1,000 dollars without proof of accredited status. Its net expenses were 9.30% a year for the I shares in its July 2026 prospectus, because the hedge funds' own management and performance fees are counted, and it buys back only a set share of its stock each quarter.
Is there an ETF that tracks hedge funds?
Several ETFs try to reproduce hedge fund index returns with futures and other ETFs, without owning any hedge fund. The NYLIM Hedge Multi-Strategy Tracker ETF (QAI) has done so since 2009 at a net expense ratio of 0.88%. The iMGP DBi Managed Futures Strategy ETF (DBMF) targets the pre-fee returns of the largest managed futures funds at 0.85%. Their records differ widely: QAI returned 3.64% a year from 2009 to June 2026, and DBMF 9.31% a year from May 2019 to August 2026.
Can I buy shares of a hedge fund on the stock market?
A few hedge fund portfolios trade as listed closed-end funds, including Pershing Square Holdings in London and Pershing Square USA in New York, and you can buy shares of listed managers such as Man Group and Pershing Square Inc. A listed fund trades at whatever price the market sets, which at the end of August 2026 was 33.4% below the value of Pershing Square Holdings' assets.