The Hedge Fund Money-Go-Round – Bill Ackman explains how hedge funds work, specifically with regard to investors in Pershing Square IV, his fund dedicated (disastrously) to going long Target.

Some of these investors, who are for the most part other hedge funds (that comprised approximately $1.3 billion of the original $2 billion of fund capital), have told me that they previously hedged a substantial portion, or in some cases 100% or more, of their exposure to Target through PSIV.

So a bunch of hedge funds invested in PSIV to go long Target (while paying Ackman his 2-and-20), and at the same time went short Target in order to hedge their PSIV exposure. And for this piece of genius they charge their own investors 2-and-20.

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