What is a hedge fund and how does this market look in Canada? Hedge funds collect money from investors and invest it to generate profits. Most hedge funds offer a maximum variety of investments in all sorts of markets. In contrast to mutual funds, the managers of hedge funds play an active role in managing investment portfolios. The aim is to generate high profits, regardless of the market conditions or index movements. Hedge fund managers also have more freedom in developing their trading strategies, compared to mutual funds. The two main reasons to invest in a hedge fund are portfolio diversification and higher potential returns. On the downside, hedge funds can be very speculative. Many of these investments are quite risky and can result in major loss as well as gain.