What exactly is a hedge fund, and how can I invest in one??

My husband and I invest in real estate, but a good friend of ours just told us about his investment in a hedge fund, sounds very interesting.

A hedge fund is a fund that can invest in many different asset classes, depending on the style chosen, and is different from mutual funds because they have much more flexibility in investment choices. In many countries these funds are less regulated and investors need to have a certain amount of money to be able to participate.
Most hedge fund will have a certain style with which they try to make money, and returns are typically not correlated with the general market movement of equities.
You should be careful with selecting hedge funds, because many will take bets on certain events to happen or not happen, and they can always be wrong of course.
It is very difficult to assess if investment returns were achieved by luck or by skills, and management fees tend to be high, which makes it even harder to achieve extra-ordinary returns in the long run.
Another problem with hedge funds is size. If a fund is very successful it may get bigger through value increase and through additional contributions from investments. This by itself will make it more difficult to retain the level of returns so far achieved.
Having said that, there are very skilled managers out there, but it is becoming increasingly difficult to find them in the huge amount of funds that exist these days.

think of a hedge fund as a group of private investors with enormous amounts of cash looking to buy underpriced companies that can generate money quickly (either by selling off its assets, changing management, or expanding into new markets).

Most hedge funds require at least a million dollar investment. Be careful. get as much information as you can about what their investment criteria are... Some hedge funds i.e. Amarenth advisors, can go belly up quickly if they are on the wrong end of options or futures trades.

Their primary objective is often capital preservation by taking positions whose returns are not closely correlated to those of the broader financial markets. Hedge funds may employ leverage, short sales, a variety of derivatives and other hedging techniques to reduce risk and increase returns. Hedge fund managers also employ investment tools that can greatly increase returns. Unlike mutual funds, hedge funds can use short selling, invest in derivatives, leverage their portfolios, and hold highly concentrated positions 鈥?strategies that can amplify returns greatly. Hedge funds are not currently subject to any direct regulation by the SEC, the NASD, or other federal regulating commissions, unlike mutual funds, pension funds, and insurance companies.

If you are into losing large sums of money go for it......and you better at least have a couple of million because most require 1 million min.....A lot of hedge funds are run by scam artists.

1) A Mutual Fund that can sell short stocks.
2) NYSE:FIG

Hedge funds are unregulated pools of money run by a manager (or possibly more than one), that offer great flexibility in allocating assets and seeking returns. Hedge fund managers can use strategies that mutual funds can't, which can increase aggressiveness or be used to hedge risk - it really all depends on the fund.
Despite what the person above me says, most hedge funds don't lose money nor are they run by scam artists. Occasionally you do get a high-profile blowup (i.e. Amaranth, Long-Term Capital), but its nothing out of the ordinary if you think about the number of hedge funds exceeding 9,000. The lesser told story is often the hedge fund managers who can compound 20-30% annually even after fees - they are a rare and highly valued subset of the market, but if you can find one you'll be very pleased with your investment results.
Hope this helps.

I agree with the above post and I think hedge funds have got some bad press due to some events in the past. But that is true of almost anything nowadays.
Since you are in real estate, you can yourself guage how much misinformation is being published. Hedge funds are as risky as speculating in real estate, in my opinion.
I know hedge funds who are doing quite well and will continue to do so in future. Investing in hedge funds require common sense and the ability to take certain risks and the responsibility that goes with it. Dont invest money that you cannot afford to lose and you should do ok. Dont bet the farm.

Regards