Operating this way allows fund managers to take more aggressive positions without the need to provide liquidity to the investors at all times.
You can only buy in or withdraw during certain periods, and there's often a lock-up period of several months to several years after the initial investment. Investments in hedge funds are often relatively illiquid. Virtually any opportunity to make money is on the table. Managers often use advanced strategies, including leverage, short positions, and derivatives such as options, and they can invest across a wide variety of markets, including stocks, bonds, commodities, real estate, cryptocurrency, and more. Restricting themselves to accredited investors allows hedge funds to take more aggressive approaches to investing since they're not heavily regulated by the SEC like mutual funds. The hedge fund pools money from its limited partners and invests it on their behalf. The investors are limited partners while the hedge fund company is a general partner. Hedge funds are structured as limited partnerships. The SEC allows accredited investors to invest in less-regulated securities offerings because it assumes investors with that much wealth will have a level of financial sophistication. An accredited investor is defined as someone with a liquid net worth greater than $1 million or an annual net income greater than $200,000 (or $300,000 with a spouse). Hedge funds limit their participants to accredited investors.
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