If you ask 10 people what a hedge fund is, you'll likely get different answers from many of them. In general a hedge fund is a professionally managed, private investment vehicle (not available to the public) and loosely regulated.
However, in Europe the term refers to a fund with the following characteristics:
1. Offshore investment vehicle;
2. Strategy goes beyond buying and selling stocks; and
3. Performance is measured in absolute terms.
In the US, a hedge fund is:
1. A domestic limited partnership;
2. Allowed to investment in many different types of securities with many different types of strategies;
3. Managers are rewarded with an incentive fee; and
4. Does not have to register with the SEC.
Hegde funds are attractive to many investors because of their ability to long, short and hedge their investments (though many "hedge funds" don't actually hedge).
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