The basic anatomy of a hedge fund. When a hedge fund is established, it is generally made to pursue a specific strategy that governs the investments the manager makes and how the fund is set up. An example of this is a fund that specializes in merger arbitrage, who will typically concentrate in investments to companies that are involved in a corporate merger or seem likely to be. Hedge funds usually buy shares in a target company and will sell short the shares of an acquiring company. If the deal is completed, there is an equal and opposite position in the acquiring company and the hedge fund can realize a profit on the spread between the two.

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