hedge fund

An investment fund that is similar to a mutual fund in some ways. Like a mutual fund, a hedge fund makes pooled investments in various securities that are anticipated to increase in value. However, a hedge fund differs from a mutual fund in two key respects. First, unlike mutual funds, hedge funds "hedge" their investments by also making "short" investments that increase in value when a given security declines in value. Second, unlike mutual funds, which are highly regulated and open to all investors, hedge funds are unregulated and are open only to what are termed "accredited investors." Typically, such investors are defined as institutions (e.g., pension funds, banks) and high net worth individuals, given the substantial minimum initial investment levels (e.g., $1 million to $10 million) hedge funds require.