I think this is a misunderstanding of what a typical hedge fund is. The name comes from the fund hedging its own investments in potentially sophisticated ways.

I think this is a misunderstanding of what a typical hedge fund is. The name comes from the fund hedging its own investments in potentially sophisticated ways. A simple to explain example is a long/short fund: by being good at shorting stocks that won’t go up so much, the fund is insulated from general market crashes (which make the shorts go up) the fund can get more leverage on their long positions. There do exist funds that only short (the best tends to lose a few % a year, iirc) and they would be invested in by other funds instead of picking stocks to short directly.