1) Hedging" is the practice to reduce risk, but the objective of majority of hedge funds is to maximize return on investment. The name is historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market . 2) Hedge funds use dozens of different strategies, so it isn't accurate to say that they just "hedge risk." In fact, since hedge fund managers make speculative investments, these funds may carry more risk than the overall market. 3) However, there are mechanisms in place to protect those who invest in hedge funds. Often fee limitations such as high-water marks are employed to prevent portfolio managers from getting paid on the same returns twice. Fee caps may also be in place to dissuade managers from taking on excess risk. 4) Hedge funds are alternative investment funds (AIFs), using pooled capital sourced from accr...