Hedge funds carry unique investment risks due to their flexible, aggressive, and often complex trading strategies, which can include heavy leveraging, short selling, derivatives trading, and investments in illiquid private assets. These alternative strategies can lead to severe capital losses during unexpected market downturns. Additionally, hedge funds typically feature high management and performance fees, strict lock-up periods that restrict capital withdrawals, lower regulatory transparency compared to standard mutual funds, and reliance on the skill of specific portfolio managers.