A hedge fund is a collection of stocks and bonds just like any mutual fund – except that hedge funds are… hedged. Shocking. What does hedged mean? That’s where all the magic is. In theory, hedge funds are supposed to be able to make money in good markets and bad and there are many strategies built around hedge funds.
Some famous ones include “macro” bets where guys like George Soros and Stan Druckenmiller shorted the British Pound on September 6, 1992. Others are based directly on individual stock picking Alpha of “star” portfolio managers.