A hedge fund acts as a private investment fund that is usually targeted towards very wealth individuals or large scale professional institutions such as insurance companies. A hedge fund is very flexible and hedge fund managers aim to investing in anything that they will believe will make profits. Unlike other types of investment fund, a hedge fund is not primarily reliant on the performance of the stock markets. For example, a hedge fund may look to derive value by seeking investment opportunities in a bankrupt or merging company. Similarly, they may look to take a trading position based on the way that they feel that specific currencies or commodities will move.
The key aspect of a hedge fund is its very flexible nature which allows managers to invest in a variety of asset classes in a variety of conditions. However, this level of flexibility also presents a very high level of risk.