Hedge fund is created with a limited number of wealthy investors or high networth individuals or accredited investors who agree to pool their funds and hire professionals i.e fund managers to manage their portfolio. They have no regulations governing them. This gives them freedom that is, they go long and short both. Also they are a lot more risky as they take on a lot more leverage, meaning they invest on borrowed capital. Hedge Funds generally have higher management fees and performance based fees than Mutual funds. The management fees in case of hedge funds is dependant on asset under management which is generally 2% to 4% and performance based fees is generally 20%