"Investment funds whose capital can be invested in alternative financial operations, which can be riskier than those foreseen for open or closed investment funds, in derogation of the prudential restrictions and limiting regulations established by the Bank of Italy to contain levels of risk1 ".
Hedge Funds, otherwise known in Italy as "speculative funds", represent a class of OICRs (Italian acronym for Investment Organisms of Collective Savings) that do not belong to the conventional class of investment funds. Their non-conformity is both regulated and operational. In their regulatory aspect2, hedge funds enjoy a greater freedom as far as investment limitations and criteria are concerned, and therefore their capital can be invested «regardless of the prudential laws of containment and diversification of risk established by the Bank of Italy».
This freedom of action, however, has resulted in special regulations concerning the nature and possibility of subscribing to these units: the legislation limits investors (or subscribers) of a speculative fund to a maximum of 200 units; the minimal initial investment cannot be less than 500,000 Euros, and these funds cannot campaign for investors. The subjects involved in speculative funds are more or less the same as those involved in investment funds: there are Società di Gestione del Risparmio (SGR), investment funds, depositary banks and prime brokers. Prime brokers, however, are a characteristic feature of speculative funds, as they provide services that are necessary to implement the strategies adopted by "hedge" funds.
From an operative point of view, the strategies of hedge funds are completely different from those of conventional funds, if we consider, for instance, that hedge funds do not have benchmarks since their goal is to achieve positive results regardless of the stock market direction. The very word "hedge" means "to cover" or in other words, trying to protect a fund from the risks of financial markets (especially the systematic risk).
Whereas classical investment funds differ from one another according to their asset allocation (please see explanation), hedge funds are characterised by the different strategies that they use to achieve their performance. It is not easy to clearly classify hedge funds; nonetheless, the following is an explanation of four of the most-commonly adopted strategies3.

1. Long/Short Equity

If we consider a classical investment fund where the fund manager varies the incorporated assets in order to outperform his/her benchmark of reference, what is the fund manager’s goal? His/her goal is to buy stocks that will increase in value with the course of time. How can he/she do better than the benchmark? The fund manager tries to beat the benchmark by overweighing/underweighing stocks that he/she believes to be under/overvalued. Regardless of his/her intentions, the fund manager is in a buy (or a long) position on shares. With the long/short equity strategy, a hedge fund manager can adopt a long (buy) or short (sell) position on stock market shares. By taking a short position, the fund manager makes a profit when the share value falls. In conclusion, if the fund manager is capable of spotting equity that is under/overvalued, with long or short positions, he/she can make money even when the market drops.

2. Event-Driven

With event-driven strategies, a fund manager attempts to make a gain by betting on the stocks and shares of companies that are undergoing particular situations or that are involved in special events. The difficulty in implementing such trading strategies is in understanding the information related to such events before the market does, and before the market incorporates the value of this information into these stocks. Distressed and merger arbitrage also belong to the event-driven category.
In distressed strategies, the fund manager bets on the equity of companies that are going through a difficult financial period, but which the fund manager believes to have a good chance of making a recovery.
In merger arbitrage strategies, the fund manager bets on the equity of companies that are involved in important financial operations such as mergers and acquisitions.

3. Relative Value

Relative value strategies are concerned with arbitrage operations based on the variation of the spread between two shares and/or the difference in price of a share compared to its theoretical price. In the first case, fund managers try to take advantage of the variation in prices of two shares that, up until a certain point in time, had always shown a strong correlation. In these strategies, the fund manager attempts to make a gain from the temporary and abnormal movement of the share price of a stock away from its theoretical value before the share prices are realigned again.

4. Global Macro

Speculative funds that use a global macro strategy probably represent the class of OICRs that differ the most from traditional investment funds. Apart from being different for the same reasons as other types of hedge funds (the absence of a benchmark; freedom from investment limitations, etc.), it is not possible to assign to these funds any type of classification in connection to the type of financial operations, geographical area or foreign currency that they invest in. Managers of global macro funds have an extremely wide range of possibilities for the investments that they can make. Their choices, indeed, are based on macroeconomic data from any country around the world (GDP, deficit statistics, employment figures, inflation levels, etc.) and so they are able to invest in almost any financial instrument (equity, bonds, foreign currencies, interest rates, etc.) and in any geographic region. Global macro funds can also replicate any other fund without any form of restriction. Normally, because of such a wide scope of choices, fund managers invest in large financial markets where they can quickly sell the positions that they have taken. 
1Please see "Glossario della finanza" on
2Please see decree-law D.lgs n. 228 of 24 May 1999 of the Ministero del Tesoro and the Regulations of the Bank of Italy of 20 September 1999 and all subsequent modifications introduced by decree-law D.lgs n.47 of the Ministero del Tesoro of 31 January 2003.
3Connor G., Mason W., (2003), "An Introduction to Hedge Funds", working paper, Financial Markets Group, London School of Economics.