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A hedge fund is an investment fund open to a limited range of investors that undertakes a wider range of investment and trading activities than long-only investment funds, and that, in general, pays a performance fee to its investment manager. Every hedge fund has its own investment strategy that determines the type of investments and the methods of investment it undertakes. Hedge funds, as a class, invest in a broad range of investments including shares, debt and commodities.

As the name implies, hedge funds often seek to hedge some of the risks inherent in their investments using a variety of methods, most notably short selling and derivatives. However, the term "hedge fund" has also come to be applied to certain funds that do not hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase rather than reduce risk, with the expectation of increasing the return on their investment.

In most jurisdictions Hedge funds are open only to a limited range of professional or wealthy investors that meet certain criteria set by regulators, but in exchange are exempt from many regulations that govern ordinary investment funds. These regulations typically include restrictions on short selling, the use of derivatives and leverage, fee structures, and on the liquidity of interests in the fund. Light regulation along with the performance fees are the distinctive characteristics of hedge funds.

The net asset value of a hedge fund can run into many billions of dollars, and the gross assets of the fund will usually be higher still due to leverage. Hedge funds dominate certain specialty markets such as trading within derivatives with high-yield ratings and distressed debt.

Source: Text Wikipedia; Glossary Swiss Fund Data; Dictionary PONS.eu.