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Hedge funds represent a more complex and aggressive investment option. Designed primarily for high-net-worth individuals, these funds use sophisticated strategies to achieve higher returns. Hedge funds can invest in a wide array of assets, including stocks, bonds, real estate, and derivatives, employing techniques like short-selling and leverage (borrowing to invest more).
Due to their high risk and potential for amplified financial loss, hedge funds are generally open only to accredited investors capable of absorbing those risks. Fees are significantly higher, often following a "2 and 20" structure—charging a 2% management fee plus 20% of any profits generated—making them attractive to seasoned investors who are willing to take on greater volatility.