A hedge fund is a lightly-regulated, private manager of capital that can engage in a wide variety of investment strategies, including short-selling (betting on stocks to go down) and arbitrage (taking advantage of small price discrepancies between two securities), amongst many others. Hedge funds can use borrowed money to enhance their returns. They typically charge a management fee of 1-2% of assets under management, plus an "incentive fee" of 20% of profits made.
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