Hedge funds are investment funds that pool capital from accredited individuals or institutional investors to deploy in various strategies in order to generate high returns. This is often associated with higher risks than in traditional investment funds. These funds are typically managed by a professional fund manager. They use a variety of techniques, including leveraging, short selling and derivatives trading.
These are a few characteristics of hedge funds. They use sophisticated strategies unlike traditional funds and they charge performance fees and management fees. They are only open to accredited investors, who have a high net worth. Hedge funds are more flexible when compared with traditional funds. They are subject to less regulations.
Another feature of hedge funds is they offer high returns but this comes with an increased risk.