Today there are more than 10,000 hedge funds in the U.S. and Morningstar lists over 1,500 U.S. registered mutual funds in their alternatives category. 

The term “hedge fund” is now used to describe a limited partnership with limited liquidity and a performance-based fee in addition to an annual management fee. 

It does not necessarily describe the investment strategy. 

Accessing alternatives through mutual funds has developed in the last 10 years, providing investors with the advantages of daily prices and liquidity and without performance-based fees. 

The category now includes strategies which buy under-valued stocks and sell over-valued ones (equity long/short), buy and sell mispriced bonds (fixed-income arbitrage), capture price trends (managed futures) and earn returns from specific risk/return factors (style premia). 

Selecting attractive alternatives requires three types of analyses:

1. .Statistical tests are applied to past results to determine whether they would have added risk-adjusted returns to a portfolio after fees.
2. The investment process is studied to determine whether the past performance is likely to continue in the future.
3. A due-diligence of the investment firm is performed, including the depth of their talent and risk controls, in order to assess the accuracy of their data and ability to respond to events in the future.

Source: https://www.investopedia.com/advisor-network/articles/are-alternative-investments-worth-risk/