A hedge fund is a fund made up of a portfolio of investments selected and managed by its portfolio manager according to a given strategy with the purpose of generating profit at a lower than usual level of risk. Hence the name hedge, meaning to reduce risk.

Hedge funds in general strive to mitigate volatility, beat a benchmark, and lower the level of risk otherwise expected while keeping a relatively high level of returns.

The liquidity of individual hedge funds may slightly differ, but generally speaking, the investments are rather illiquid, meaning it is a long-term investment. Oftentimes, hedge funds managers lock up invested money for one or two years or even longer.

The performance of a hedge fund depends on both its investments strategy and the portfolio manager.

Since hedge funds have very little regulatory oversight, the array of investment techniques portfolio managers can use is much broader than in the case of traditional investment accounts, including short selling or leveraging.

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