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Hedge funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of alternative investment strategies.
Those might include holding both long and short positions, investing in derivatives, using arbitrage, and speculating on mergers and acquisitions. Some hedge funds use leverage, which means investing borrowed money to boost returns.
Because of the substantial risks associated with hedge funds, securities laws limit participation to accredited investors whose assets meet or exceed Securities and Exchange Commission (SEC) guidelines.