While there is no exact definition of a hedge fund under federal or state securities laws, the hedge fund is as an aggressively managed portfolio that uses advanced investment strategies such as arbitrage, leveraged, long, short and derivative positions in both domestic and international markets. Unlike a mutual fund, which seeks to outperform or match a particular index, the hedge fund seeks high positive returns at all times. Generally hedge funds have been unregistered and available only to accredited, sophisticated high net worth investors. More recently, some hedge funds have become registered with the SEC, with the fund then investing in various private hedge funds. These registered hedge funds have become known as “funds of hedge funds”. Because they accept lower investment amounts, funds of hedge funds have been offered to a wider range of investors. Still, the funds of hedge funds carry significant risk, they can also be illiquid, and they use complex trading strategies used by the traditional hedge fund.

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