Investors of all sizes were hit pretty hard as the recent economic decline spread to most of the advanced countries around the world. Many lost a significant percentage of their invested funds, as stock prices tumbled and other market factors took their toll on investments. Now, more and more people who have been battered by the market are looking for options of where to invest and many are drawn toward learning about hedge funds as a way to diversify and protect their capital.

Some people who are new to investing might get mixed up as far as understanding the difference between hedge and mutual funds. Mutual funds are highly regulated by the SEC in the United States, and by other financial governing bodies in other countries. A hedge fund, on the other hand, is more of a private investment vehicle and is very loosely regulated, and these pooled funds are usually limited to a maximum of 100 investors.

Another unique aspect about these funds is that they are not openly advertised as other investment vehicles, such as mutual funds. The fact of the matter is that while these private investment pools are not tightly regulated, they are not allowed by the SEC to do any type of advertising or soliciting. As a result, most people find a fund to invest in by means of word of mouth or by some existing relationship with a hedge fund manager.

Some people say that hedge funds are not regulated at all, but this is not quite accurate. While investors do enjoy a much greater degree of freedom in how they operate and how they invest the money in their funds, they still do have some guidelines and regulations they must operate under. These regulations do vary depending on where the operating office of the fund is located. In many instances, the legal location and the physical location of the services are in different places, usually in two different countries.

There are many in the financial industry that believe that hedge fund managers and the funds that they manage control a vast amount of money in the global economy. Some estimate that this amount is in the hundreds of billions, if not trillions, of dollars. However, because there are no annual reports to issue, such as with mutual funds, the reality is that no one knows exactly how much money is invested in them. Some investors are put off by this, but others are intrigued about hedge funds and how they can help them diversify and grow their portfolios.

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