Hedge Fund

A hedge fund is a pooled investment vehicle for wealthy individuals and institutions that uses a wider toolkit than a typical mutual fund, including short selling, leverage, and derivatives, in pursuit of returns that are not simply tied to a rising market. Despite the name, many hedge funds take large directional bets rather than hedging in the literal sense.

Hedge funds are lightly regulated relative to mutual funds and are generally restricted to accredited investors, in exchange for that flexibility. Fees have traditionally followed a 2-and-20 structure: 2% of assets annually plus 20% of profits, though fee compression has pushed many funds below those historical norms.