Starting from the 1990s hedge funds gained popularity worldwide. In 2011 the worldwide industry held almost $2 trillion in assets under management. Over the last decades there was increased diversification in strategies, further widening the concept of hedge fund category. Hedge funds generally target absolute and/or high returns and strongly use derivative assets regarded as ‘risky’ for the general public. In most regulations hedge funds are not allowed to be sold to the general public considering them as somehow ‘risky’ investments. A high percentage of hedge funds are domiciled in remote islands and in offshore locations exploiting loose regulations. On the other hand hedge fund managers promise more optimal risk-return profile than classical asset classes. And investors may use them as a tool to reduce their overall portfolio risk exposures. Analyzing the data of the past 2 decades with periods of extreme ups and downs, a more precise picture can be drawn on the risk-return character of the hedge fund industry.