What is an Incubated Fund?

An incubated fund (also called a limited distribution fund) is a hedge fund that is offered privately to a very select group of individuals, usually family members or employees of the fund. This is so the fund can stay small and unregulated while testing differenent investment strategies. If the fund does well, it may then be offered to the public. If the fund fails, it is liquidated. Some investors are cautious about funds that were once incubated that post high returns. This is because the lack of regulation while the fund was incubated may have been the reason for the high returns.