What distinguishes hedge funds from other types of investments?

Hedge funds are primarily distinguished by their exclusivity in terms of investor access. They generally require high minimum investments and are often available only to accredited investors or institutional clients. This restriction is in place because hedge funds engage in complex strategies that can involve significant risk, and the regulatory framework allows them to operate with a greater degree of freedom than other investment vehicles like mutual funds. Consequently, they tend to promise potentially higher returns, but also entail heightened risk levels, making them appropriate primarily for those who can bear such risks and who have the capital to invest.

While locking up investors' capital for fixed periods might be a feature of some hedge funds, it is not universally applicable as many hedge funds offer more flexible structures. Higher regulatory oversight typically applies to mutual funds and other investment vehicles to ensure consumer protection, rather than hedge funds, which can operate with more leeway. Finally, hedges funds are not accessible to the general public; they are designed for a more limited and qualified group of investors. Thus, the defining characteristic is their restricted access and selectivity regarding who may invest, emphasizing the specialized nature of these funds in the investment landscape.