An incubated fund (also called a limited distribution fund) is a hedge fund that is offered privately to a very select group of individuals, usually family members or employees of the fund. This is so the fund can stay small and unregulated while testing different investment strategies. If the fund does well, it may then be offered to outside investors. Conversely, if the fund fails, it is liquidated. Oftentimes, investors are wary of hedge funds which began as incubated funds. This is because the lack of regulation while the fund was incubated may have contributed to the high returns.