Category Archives: Hedgeducation 101
Common Misconceptions About The Risk Associated With Hedge Funds
One of the top reasons that investors and financial advisors don’t invest in hedge funds is that they think they are too risky. As with any investment, there is a certain amount of risk associated with hedge funds and yes, the risk is greater than that of t-bills or government bonds. However, one could argue that the investment strategies of […]
Types of Hedge Funds
Within the investment industry, there are many different strategies that can be utilized in an attempt to get a greater return on the capital invested. As such, there are many different types of hedge funds with a diverse realm of investing styles. For the most part, all of the fund types fall into one of five categories or styles: macro, […]
Hedge Fund Performance & Management Fees
Hedge funds typically earn income through a variety of fee structures charged to their clients. These fees are not only meant to cover fund administrative and operating costs, but also to reward employees and managers for providing positive returns to investors. The most common and well-known hedge fund fee structure combines both management and performance-based fees. First, the “management” fee […]
The History of Hedge Funds
In 1949, Alfred Winslow Jones devised and implemented an investment strategy that would forever brand him as “the father of the hedge fund industry.” While working for Fortune Magazine and investigating financial strategies, Jones decided to launch his own fund and raised a total of $100,000, $40,000 of which was his own money. Jones employed two strategies still used heavily […]
How Do Hedge Funds Work?
There is no specific formula for how hedge funds work because different hedge funds employ a multitude of different strategies. However, there are some common characteristics that are present in most hedge funds. All hedge funds start with a hedge fund manager. This manager brings a specific strategy or investment philosophy to the table. Maybe he chooses to use leverage, short-selling, or derivatives. […]
What is a Qualified Client?
With regards to hedge fund investing, an accredited investor is not to be confused with a “qualified client.” Qualified Clients are the most attractive investors for hedge fund managers. They must meet one of the following criteria: A natural person who or a company that immediately after entering into the contract has at least $ 750,000 under the management of […]
What is an Accredited Investor?
Due to the risky nature of hedge funds, the Securities and Exchange Commission requires that investors meet certain minimum requirements. An “accredited investor” must meet one of the following prerequisites as defined by the SEC: a bank, insurance company, registered investment company, business development company, or small business investment company an employee benefit plan, within the meaning of the Employee […]
Private Equity Funds
Private equity funds are funds made available to a limited group of high net worth investors, making them similar to hedge funds. Private equity funds are similar to hedge funds in that both require a sufficient initial investment, usually around $1 million. However, while there are some similarities, hedge funds do vary from private equity funds. Hedge funds usually aim […]
Prime Broker
Prime Brokerage is the generic name for a bundled package of services offered by investment banks to hedge funds. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund, and the hedge fund’s collateral requirements are netted across all deals handled by the […]
Fund of Funds
A Fund of Funds, by definition, is a fund that invests in other hedge funds, rather than in individual securities. Any fund that pools capital together, while utilizing two or more sub managers to invest money in equity, commodities, or currencies, is considered a Fund of Funds. Investors allocate assets to Fund of Funds products mainly to diversify amongst the […]
Hedge Fund Strategies
Aggressive Growth: Invests in equities expected to experience acceleration in growth of earnings per share. Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth. Includes sector specialist funds such as technology, banking, or biotechnology. Hedges by shorting equities where earnings disappointment is expected or by shorting stock indexes. […]
What are Family Offices?
Family offices are exclusive wealth management firms which primarily only accept clients with at least $10-$25M in assets. Although family offices typically manage finances for a smaller pool of clients, they are able to provide services in a wide variety of areas such as comprehensive tax and estate planning, charitable giving, foundations, budgeting, and traditional wealth management. Family offices traditionally […]
The Process of Creating a Hedge Fund
You’ve done your research. You’ve studied the market relentlessly. You feel you have a strategy devised that will make your investors and yourself a lot of money. In today’s high-tech industry, it is easier than ever to start a hedge fund. Most of the consulting work can now be done via the internet or the telephone. It’s basically a matter […]
What is an Offshore Hedge Fund?
Hedge funds structured under foreign law, or located outside the U.S. are designated as “offshore hedge funds.” Managers who desire to start a hedge fund offshore can enjoy several advantages over their domestic contemporaries. One advantage is that the fund and its investors are not subject to United States taxation. Another advantage is that since the number of accounts in […]
Hedge Fund Performance
When analyzing hedge fund performance, there are many factors to consider. Hedge fund managers classify their returns several different ways and it is important to consider all of these before ascertaining a ‘real’ number. One distinction that is important to remember when interpreting hedge fund performance is whether the returns are net of fees, or are computed prior to fees. […]
Hedge Fund Manager
Hedge Fund Manager Capital Introduction A hedge fund manager and/or any person acting on its behalf may not solicit an investment into a hedge fund through any type of “general solicitation” or general advertisement” under Section (c) of Regulation D. As a result, an increasing number of hedge fund managers rely upon hedge fund advisory services to handle most capital […]
What is a Hedge Fund?
A hedge fund is a private investment fund open only to sophisticated investors. Depending on the type of fund, the investor may need to fulfill the requirement of “accredited investor” or “qualified client.” In most states, hedge funds are not required to register with the Securities and Exchange Commission and are therefore often regarded as “secretive” or “unregulated.” In actuality, there have […]
