What typically characterizes a hedge fund compared to mutual funds?

Hedge funds are typically characterized by employing more diverse and complex investment strategies than mutual funds. This can include a variety of tactics such as short selling, leverage, derivatives trading, arbitrage, and investing in alternative assets. Hedge funds are designed to achieve absolute returns, meaning their goal is to generate a profit regardless of market conditions, which often requires employing sophisticated strategies that can be highly flexible.

In contrast, mutual funds tend to have more straightforward strategies, primarily focusing on investing in a diverse portfolio of stocks and bonds, generally conforming to specific investment mandates. They are often less nimble than hedge funds due to regulatory constraints and the need to maintain a more consistent investment approach to meet the expectations of retail investors.

While hedge funds may not always be registered with regulatory bodies like the SEC depending on certain exemptions, they do face different regulatory frameworks than mutual funds, which are required to register and adhere to strict guidelines. Hedge funds are also not limited to fixed interest rates, as this concept relates more to specific types of debt investments rather than the broader strategies employed by hedge funds.