http://www.thefinancialwhiz.com/2007/05/30/utilizing-%e2%80%9chedge-fund%e2%80%9d-mutual-funds-to-generate-consistent-returns/

Excerpt from blog post:

The rules regarding hedge fund investing are very strict and they restrict investors with a small asset base from participating in the lucrative returns that come with the asset class. However, there are mutual funds currently employing strategies typically seen in hedge funds. The construction of this portfolio strategy is similar to that of a "fund of funds" hedge fund approach, which invests in different hedge funds that use various investment strategies. The approach of purchasing many "hedge-fund" mutual funds, gives the investor diversity which combats the potential risks that come with investing in individual management firms and potential fund-related risks.

The back-test of an approach utilizing the "hedge fund" mutual funds shows comparable returns to that of overall equity markets with much less volatility. The portfolio appears to be a great hedge against market downturns because the strategies used in the majority of the funds are long-short, which involves going long one stock and selling an equal amount of a comparable stock. These positions are market neutral, meaning that the market and industry risk is taken out of the equation. In some funds, there are other strategies employed, such as distressed debt investing, merger arbitrage, convertible arbitrage, and other hedge fund strategies...