Set bed by lake (7)
I believe the answer is:
coterie
'set' is the definition.
(I know that coterie is a type of set)
'bed by lake' is the wordplay.
'bed' becomes 'cot' (cot is a kind of bed).
'by' means one lot of letters go next to another.
'lake' becomes 'erie' (Lake Erie is one of the Canadian/US 'Great Lakes').
'cot'+'erie'='COTERIE'
(Other definitions for coterie that I've seen before include "Select group" , "Group, band" , "Exclusive social circle" , "Small exclusive group of people" , "EEC trio in exclusive group" .)