Private investments, open to large customers and wealthy individuals, that use borrowed funds to invest in the stock, bond, and foreign exchange markets. Hedge funds are exempt from regulation by the Securities and Exchange Commission (SEC) under federal securities laws. Thus, hedge funds are not required to limit the types of financial instruments included in their fund and donÂ’t have to disclose information about their holdings beyond what they voluntarily want to disclose. Hedge funds often take 20 percent of the annual return for their profit, with an annual fee of about 2 percent.