Hedging means practice of attempting to reduce risk but the goal of hedge funds now days is to maximize the return which requires certain amount of risk, quite opposite to what it is meant for. This is estimated to be $1 trillion industry and growing at about 20% annually with around more than eight thousand active hedge funds. Hedge funds are special type of funds in which only few wealthy investors can invest. This provides some special privileges to them and it is a bit less regulated. For example hedge funds give these investors and opportunities like short selling and investing in complex derivatives, which are  not available to  even mutual fund managers. The primary goal for hedge funds is to give high return to the investors by setting up private investment partnerships that would require large sums of initial minimum investment.
These sophisticated investors are required to have a net worth of more than a million dollars and significant investment knowledge.  As we can observe high return is the primary motive for investment in these funds by selected few investors.

There are over fourteen or more hedging strategies currently employed by the hedge fund managers in the market. Opposite to popular misconception that all hedge funds are volatile, less than 5% of hedge funds use global macro funds and most do not use hedge funds derivatives. Many hedge funds have ability to return non market correlated returns. These funds attracted buy a few of the best financial brains to manage them because their incentives are based upon  their performances and  are usually very high. These managers also invest their own money in these funds so they could be relied to give it their best shot to manage these funds. Since most hedge funds are highly specialized and it has to depend upon the expertise of the managers. For example if a manager is specialized in discounted securities he might intend to invest in discounted securities of companies who are about to enter or exit financial distress or going to be bankrupt.  On the other hand some other manager might be specialized in investing in emerging markets so their strategy would depend upon that. A lot of these managers will limit the amount of money they will accept. Against the common opinion and market trend in general in December last year one American Investment company bought a Hedge Fund called Danfond Frontier Funds and they plan to launch two hedge funds in the first quarter of 2009. So they utilized the down turn in the market as opportunity to be successful in this area. Hedge funds are popular investment destinations for many banks and financial institutions like Swiss bank and private banks because they understand the financial markets and are aware of market correction consequences in the stock market.

Like any other investment instruments market will certainly affect the hedge fund performance as well. Like big losses, fund closures and turbulent market in 2008 lead to one of the worst years for hedge funds as well. Average Hedge Fund fell by twenty percent in 2008 and there is major changes expected after this year.  In future Hedge Funds who invest their funds in liquid assets will have to lock their funds for longer time because in late Dec. last year they had several unhappy clients because they could not serve their requests due to credit crunch. Also hedge fund managers currently charges about 2 percent fee and take 20 percent of the gains in the investments but several investors waiting on the side lines due to some of the events this year, the remaining investors will bargain for reduced fee. With the arrest of Wall Street giant like Bernard Madoff some of the best known names in banking and business have been forced to admit some deceptions in hedge fund strategies as well. Samuel Hocking from prime brokerage BNP Paribas has predicted that due to high operating costs and higher margin requirements there could 30% failure rate for hedge funds in 2009 as well. There are several counties who are also interested in hedge funds as they invest their pension funds to gain high interest rates, San Diego county of California is one such county, recently in the news because they withdrew their portfolio of one billion dollar hedge funds because they thought their funds were at high risk and were not as attractive any more.