Hedge Fund

A hedge fund is an investment fund charging a performance fee and typically open to only a limited range of investors. In the United States, hedge funds are open to accredited investors only. Because of this restriction they are usually exempt from any direct regulation by the SEC, NASD and other regulatory bodies.

Though the funds do not necessarily hedge their investments against adverse market moves, the term is used to distinguish them from regulated retail investment funds such as mutual funds and pension funds, and from insurance companies.

Hedge funds' activities are limited only by the terms of the contracts governing the particular fund. They can follow complex investment strategies, being long or short assets and entering into futures, swaps and other derivative contracts.

The funds, often organized as limited partnerships in the United States, typically invest on behalf of institutions and high-net-worth individuals. A common objective is to generate returns that are not closely correlated to those of the broader financial markets.