What is a "hedge fund"?

A hedge fund is defined as an investment vehicle that employs a range of strategies, including but not limited to long and short positions, leverage, derivatives, and arbitrage, with the objective of generating high returns on investments. This flexible approach allows hedge funds to capitalize on various market conditions and asset classes, diversifying their portfolios and actively managing risk. By employing diverse investment strategies, hedge funds can pursue opportunities across equities, fixed income, currencies, real estate, and other alternatives.

The focus on active return generation differentiates hedge funds from more traditional investment funds, which may have a more passive approach or may not utilize the same level of market strategies and instruments. This active management is a hallmark of hedge funds, aiming for absolute returns regardless of market conditions, which is why the correct answer effectively encapsulates the essential characteristics of hedge funds in the investment landscape.