"These guidelines should serve as a foundation to enhance vigilance and market discipline further, which will strengthen investor protection and guard against systemic risk," Treasury Secretary Henry M. Paulson, the head of the working group, said in a statement.
The working group, which was formed after the stock market crash of 1987, is composed of the Treasury secretary and the heads of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Paulson said the group believed that the government's policies toward hedge funds should be governed by a consistent set of principles "that set out a uniform approach to specific policy objectives."
The guidelines stressed the need to boost information so that market participants would have an accurate and timely assessment on which to base investment decisions.
Paulson said the working group would continue to monitor developments in the hedge fund market with these principles in mind.
Unlike mutual funds, which generally hold stocks and bonds, hedge funds can invest in anything from commodities to real estate. Some funds even buy whole companies, while others buy and sell stocks like day traders -- but with billions of dollars at stake.
One of the biggest hedge fund collapses to date came last September, when Amaranth Advisors lost a stunning $6 billion because of bad bets on natural gas prices. California's San Diego County lost an estimated $85 million from an Amaranth investment by its employee pension fund.
U.S. hedge funds, now numbering more than 9,000 with assets estimated to exceed $1 trillion, traditionally catered to the rich, as well as pension funds and university endowments, but are increasingly luring less wealthy investors.
The funds operate with minimal government supervision. Since 2001, the SEC has brought more than 60 cases charging hedge fund managers with defrauding investors of more than $1 billion.