What is a hedge fund?

First of all hedge funds are companies (the financial instruments managed by companies of savings) *, of which, however, the vast majority are registered in tax havens.  
A hedge fund is a fund highly speculative (clarification: any investment in financial markets tends to be speculative, that tends to provide a certain state of the market with the goal of having much higher returns). These funds are based on this principle: the financial markets tend to make long term investments, and they use that "debts" to make subsequent investments in the short term and more risky generating capital. 
For example: a hedge fund decides to borrow large sums of the market through a bank and with this money (which is actually a debt) by financial markets recklessly, by investing in short-term securities and very risky, but are risky because they give many interests and many returns that are collected in a short time.  

This type of behavior in financial markets can be considered a "pirate" for two reasons: the short-term investments are fattei with real bets and without having all the money available. Can commit even 5% of the amount needed and collect even 30 or 40% profit. The second reason is that these kinds of titles - very risky - are tied to unfavorable situations (otherwise they would not have big returns). So hedge funds tend to bet on defaults of countries, the corporate failures and so on. Hedge funds generally are not linked to the banking system, although some banks are setting up their own hedge funds.