Hedge funds are managed investment funds that are only lightly regulated by the SEC. To take advantage of this lack of scrutiny, hedge funds can only manage money for the wealthy (e.g. they set a minimum enrollment investment at $1 million or more). The rationale is that the SEC does not need to monitor hedge funds, because hedge fund investors can afford to lose their investment.
Furthermore, the light regulation is justified by the argument that hedge funds' free reign attracts investors, which in turn lifts the whole market. Hedge funds manage approximately $1.4 trillion in the U.S. market, accounting for about 5% of all assets in the US, and about 30% of stock-trading volume in US markets. (Wall Street Journal, Jan 29, 2007) See: http://users1.wsj.com/lmda/do/checkLogin?mg=wsj-users1&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB115394214778218146.html%3Fmod%3D2_1154_3
(Here is an interesting map of global asset distribution (originally, Wall Street Journal, Jan 10, 2007): http://bigpicture.typepad.com/comments/2007/01/worlds_assets_h.html)
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