Hedge funds are widely known as investment vehicles for the wealthy because of their high risk investment strategies. Similar to mutual funds, in the way that they employ a manager and that the investments are pooled together, hedge funds are drastically different in the type of investments they hold. Unlike your traditional mutual funds that generally hold blue chip stocks, such as Apple, Coca-Cola, Amazon and Google, hedge funds have no restrictions on the type of investments they can manage or the strategies they implement to generate returns. Although many hedge funds do hold stock in companies like the ones mentioned above, many hold some extremely unusual investments.

SEE: Taking A Look Behind Hedge Funds

Neverland Ranch
Well-known as the home of the late Michael Jackson, the outstanding mortgage on Neverland Ranch was bought in 2008 by Fortress Investment Group, in an arrangement made by the King of Pop to avoid going into foreclosure. The mortgage of roughly $24 million was later bought by Colony Capital LLC, a private equity firm, which, along with Jackson's estate, co-owned Neverland Ranch through a company called Sycamore Valley Ranch Company LLC. Unfortunately, there are no confirmed plans for the ranch at this time, although rumors have been stirring that the 2,500 acre estate in California may be turned into a state amusement park in the future.

SEE: The Pitfalls Of Buying A Foreclosure House

This may sound bizarre, but hedging against weather patterns has been around for over a decade. In the late 1990s, investment institutions began to realize that there was a real market for weather derivatives. Companies producing products dependent on the weather, or that could be affected by weather conditions, could now hedge against losses caused by extreme weather. In 1997, the first over-the-counter weather derivative was traded and a few years later the Chicago Mercantile Exchange introduced exchange-traded weather options and futures.

Today, the weather derivatives market is over $11 billion. According to an article published by the CME group in 2010, there are currently about 44 cities available for trading: 24 American cities, six Canadian cities, 11 European cities and three Japanese cities. PCE Investors Cumulus Funds offer both the Cumulus Energy Fund and Cumulus Fahrenheit Fund that involve weather derivative trading.

Back in 2005, a hedge fund known as Pirate Capital owned around a 13% stake in a company called Cornell Companies, which runs prisons. Hedge funds have been commonly associated with prisons over the years, as many fund managers have been sentenced to serve time for a plethora of different crimes, but owning them is a different story.

Pirate Capital invested around $20 million and at the time became the largest shareholder of Cornell Companies; however, it appears the hedge fund no longer owns the position, since Cornell Companies was bought by rival GEO Group in 2010. In terms of diversifying assets to capture gains, this is a great example of the uncommon investments hedge funds will delve into.

SEE: 5 Strange New Ways To Invest

The Bottom Line
The hedge fund industry has always been very secretive and, until recently, one with little to no regulation. In 2011, the SEC implemented the Dodd-Frank Act to help impose stricter regulation on these types of investment vehicles. Previously, in many cases, advisors to private funds could avoid registration with the SEC. This allowed the advisors to fly under the radar and the SEC to have very little regulatory oversight into the private funds. The Dodd-Frank Act now requires most advisors to complete SEC registration detailing general fund data, size, ownership of the fund and the advisor's services to the fund.

According to an article recently released by Business Insider, the top 10 hedge funds in the world have over $387 billion assets under management. Even with the new regulation in place, the hedge fund industry is still thriving in this high risk, high reward atmosphere.

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