Hedge funds, CTAs and CPOs: outside the public markets

Alternatives are private funds and managed-futures programs that are not sold like mutual funds. They can go long or short, use leverage and trade futures, and most are open only to investors who meet wealth or income tests.

Education only. We explain how these products work and what they cost. We do not sell or recommend securities, futures or private funds.

The group

Three names for related ideas

Hedge fundA private investment fund that can buy and sell short, use leverage and derivatives, and invest across stocks, bonds, currencies and commodities. Usually offered privately, without the registration and disclosure of a public fund, and overseen by the SEC through its adviser.

CTAA commodity trading advisor manages or advises on futures, options on futures and swaps for clients, often through a managed-futures program in the client’s own account. Many follow trends across dozens of markets.

CPOA commodity pool operator runs a pooled fund that trades futures, the managed-futures version of a hedge fund. CTAs and CPOs are regulated by the CFTC and must be members of the National Futures Association, with principals who pass the Series 3 exam.

How they differ from the products above

What you get, and what you give up

Not tied to the marketThey can profit when markets fall, and some managed-futures strategies have done best in sharp declines. Results depend on the manager, not the index.

Fees on profitsMany charge a yearly management fee plus a share of profits, the industry’s long-running “2 and 20.” A high-water mark means the profit fee is paid only on new highs.

Less liquidityMoney may be locked up for a period, with withdrawals only monthly or quarterly and with notice.

Less disclosurePrivate offerings do not have to provide what a registered fund does. CTAs and CPOs must give a disclosure document, but private funds can share less, and you could lose your entire investment.

LeverageFutures and borrowing magnify both gains and losses.

Track recordsAsk for the manager’s audited record and whether the firm claims GIPS compliance. A record of one strategy in good markets tells you little.

Who can invest

The accredited investor rules

Most hedge funds and commodity pools are sold through private offerings limited to investors the SEC presumes can judge the risk and bear a loss. The main test is the accredited investor.

You are an accredited investor if	The test
Income	Over $200,000 a year ($300,000 with a spouse or spousal equivalent) in each of the last two years, and you expect the same this year
Net worth	Over $1 million, alone or with a spouse, not counting your primary residence
Professional license	You hold a Series 7, 65 or 82 license in good standing
Trusts and entities	Generally over $5 million in assets or investments, or all owners are accredited

Source: SEC, Updated Investor Bulletin: Accredited Investors (investor.gov). Many funds also confirm your status with documents.

$5 millionin investments to be a qualified purchaser, required by larger hedge funds (Section 3(c)(7) funds)

$4 millionin securities, or $400,000 of futures margin, for a qualified eligible person in many commodity pools (CFTC Rule 4.7, since March 2025)

Lose it allthe SEC’s own warning: private offerings carry unique risks and you could lose your entire investment

See the numbers yourself

Hedge fund and CTA performance, independently tracked

BarclayHedge has tracked hedge funds and CTAs for over 40 years and publishes more than 50 hedge fund, CTA and managed-futures indices. Free registration lets you look up the indices and compare strategies before anyone shows you a single fund.

Free BarclayHedge registration → About BarclayHedge →

An outside, independent source. We are not affiliated with BarclayHedge and receive nothing from it.

ACI Education Series · PDF

Built like an endowment?

Endowments are the largest users of hedge funds and alternatives, and keep only a sliver in bonds and cash. How their mix compares with a typical retail portfolio.

Open the PDF →

Before you invest

Questions to ask

Is this a hedge fund, a commodity pool or a managed account, and who regulates the manager?
What is the management fee, the performance fee, and is there a high-water mark?
How long is my money locked up, and how often can I withdraw?
Is the track record audited, and how did it do in 2008 and 2022?
How much leverage does the strategy use?
Who is selling it to me, and what are they paid?

Offered a private fund or managed-futures program? Bring the offering documents to a product review. We will walk through the fees, the terms and the risks. We do not recommend or sell any investment. Schedule a product review → Back to Who We Are → Stocks, bonds and retail by-products →

Advanced Capital & Investments pages are for education only. Nothing here is an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or investment strategy, and we do not sell securities through this site. Examples are hypothetical, do not represent any actual product and do not reflect taxes unless stated. Investing involves risk, including loss of principal. Before investing in any fund, read its prospectus and talk with a properly registered professional. Hedge funds and commodity pools are offered only by private placement memorandum or disclosure document to eligible investors. Futures trading involves substantial risk of loss.