Tag Archives: Hedge Fund Joseph Healey

Planning to invest in Hedge funds?

15 Feb

For investors planning to invest in Hedge funds, one of the major concerns is regarding the fees that are associated with the hedge funds. This article is designed to help concerned  investors get their answers on the fees associated with hedge funds? After going through the information provided here, you will feel a bit more informed.

There are various fees involved in managing the hedge funds. In the majority of the financial markets across the globe, the following fees normally form a part of the hedge fund.

Withdrawal Fee

This is the fee that is charged by the hedge fund manager when the investor withdraws money from his/her hedge fund account. This fee has been introduced to discourage the investors from frequently withdrawing money from their hedge fund account. Such fees are applicable when the investor withdraws the money too soon or when the investor withdraws more money than the set limits.

Management Fee

This is the fee that goes to the fund manager who manages the hedge fund. The fee for the hedge fund manager is usually set between one percent and four percent of the total hedge fund value. This fee is usually paid to the fund manager in installments.

Performance Fee

In addition to the management fee, the hedge fund manager is also eligible for a performance fee. A certain percentage of the fund profits is set aside as the performance fee. This usually ranges from 18% to 20% of the total fund profits.

Hurdle rates

Hurdle rates are used  for computing the performance fees. Hurdle rates are calculated by comparing the fund performance with external standards. The external standard would include the standards established by the country’s apex financial regulatory institution. The fund manager would not receive a performance fee if the rate of fund return is less than the hurdle rate.

High water marks

This is another factor in addition to hurdle rates that goes in to determining the performance fees of the fund manager.

Brief history of hedge funds

5 Feb

Putting it in a nutshell, hedge funds are designed to handle a wide range of trading and investing activities. It must be mentioned, though, that hedge funds are open solely for certain types of investors. Generally speaking, investors can deposit and withdraw funds regularly, and this is only one of the advantages of these investment funds. In this article I will present you a short history of hedge funds, from the beginning until now.

The first hedge fund was founded back in 1949 by Mr. Alfred Jones. Jones had the idea of creating investment funds in 1948, when he was working as a journalist and he was writing an article about the main trends in investment forecasting. It was then when Alfred Jones reached the conclusion that he could develop a more efficient system for managing money. The term “hedged fund” refers to a specific investment strategy that involved purchasing assets whose price was believed to increase and afterwards selling the assets whose price was about to decrease. By doing so, Jones wanted to minimize the risks associated with the trading industry.

Despite the fact that hedge funds were blossoming, the unique strategy developed by Jones was brought to the public eye in 1966, in an article about the success of Alfred Jones and provided statistics regarding the benefits of hedge funds. After the article was published, more and more investors became interested in hedge funds. Nonetheless, it turned out that this strategy was not suitable for just any investor, and most of them simply stopped doing it. As expected, the number of hedge funds dropped significantly.

Hedge funds started to gain popularity again around the 1990s. Even though the strategy is basically the same, new hedging tools have emerged and made hedging safer. In addition, the concept of hedging has remained the same as well: hedge funds are still very exclusive clubs and, as stated above, they are designed only for certain types of investors that are specified by regulators.

How are hedge funds structured?

12 Jan

No one hedge fund resembles another, and the name of the game in today’s world of hedge fund investments is diversity. There are any number of strategies used with hedge funds, and many different types of investments to boot (everything from regular stocks and bonds to internet startups and currency).

Let us not forget that hedge funds located outside of the United States function very differently from those within it! However, there are a few things about the structure of most hedge funds that everyone should know.

  • Hedge funds are private partnerships (or companies) between investors and skilled money managers. Investors do not make the investment decisions regarding the hedge fund portfolio; that is left up to the money manager. There are no assets or employees within the hedge fund – aside from, of course, the investments themselves.
  • There are other roles within the hedge fund aside from investor and manager. These may include: administrator, prime broker, and distributor
  • Depending on where the hedge fund is located, its legal status (including regulations and taxes) may differ greatly. In America, hedge funds are considered private investments and are therefore unregulated (although in some ways that is a misconception; there is indeed regulation for all kinds of investments, including hedge funds. The major difference is that in most cases the SEC does not regulate hedge funds). In offshore locations, the investor is required to pay fees, rather than the money coming from the fund itself. Taxes on offshore hedge funds are also paid out by the investment manager, according to how much they receive for managing the hedge fund.
  • Location really is a huge key to how hedge funds work. While many hedge funds may be technically located offshore, the majority of popular hedge fund managers can be found on shore, near financial hubs.
  • Most hedge funds are designed to be open ended. This means that investors can withdraw their money periodically from the fund, and also add money as time progresses. There may be a requirement for a minimum balance, and of course a requirement to open a hedge fund, but there are typically no other restrictions set on the balance amount. (Frequent withdrawals from hedge funds are not encouraged, however.)
  • Before redemption of the hedge fund, usually profits are not distributed to investors. The profits from hedge funds are typically arranged to be withdrawn either monthly, quarterly, annually, or bi-annually. Individual hedge funds may have specific policies about when money can be withdrawn from the hedge fund.

This was a brief outline of how hedge funds are structured and work. The reality of hedge funds is that they are complicated, diverse investment portfolios. As mentioned above, no hedge fund truly resembles another, even if the specialization of the investment(s) is similar, or if the strategies used are similar. A hedge fund located in New York is going to be very different from one located in London, and even two hedge funds both located in New York are going to be nearly unrecognizable from each other.

Hedge fund trends in 2012

3 Jan

Hedge fund trends tend to change over time – hence why they’re trends! Hedge funds themselves have a long and storied history of changing over time; think of the massive diversification into the internet with the Dot Com boom, and more recently, the newest regulations with the Dodd-Frank Act reshaping traditional hedge funds as we know them.

Recent hedge fund trends are all over the map (and there is no guarantee that these trends will continue), but here is a small selection:

  • Hedge funds in the early part of 2012 have shown a move toward global markets. The fact that hedge funds have a very large global presence, and that there is virtually no limit to what kind of investments can be made inside of a hedge fund portfolio, means that now is the perfect time to invest in emerging global markets.
  • The uber rich have been careful with their assets lately, seemingly looking to protect themselves against margin calls and looming finance changes. Many hedge funds have taken their assets out of funds in the form of cash. Hedge fund portfolios are still going strong, though, with 2012 seeing the best performance in the beginning of a year since 2006.
  • Managed futures are up, as are global macros!
  • Larger funds are seeing larger inflows. Small funds are still mostly experiencing redemptions, but not the kind of net inflows that larger funds are seeing. The number stands as funds with more than one billion dollars in assets receiving 78% of inflows.
  • Hedge funds that beat their ‘peers’ in 2011 had similar results in 2012 – at least thus far. 57% of those peer-beating funds saw net inflows in the first quarter.
  • The trend did seem to be that those hedge funds which saw positive results in 2011 continued to do so into 2012. The majority of large hedge funds saw net inflows in the first quarter of 2012, where 63% of mid-size funds with positive performance in 2011 saw net inflows into 2012.
  • There was a marked trend of investors who discovered their investments had under-performed shifting out of them and heading for seemingly greener pastures. This is usually the case (no investor typically has the patience to “hang around” an under performing fund), but the numbers were higher in the first quarter of 2012.

One of the biggest changes of 2011, leading into 2012, is the continued implementation of the government’s insider trading charges and other legal actions. Some funds have closed, many managers are under investigation, and some funds are doing poorly in general due to the continued investigation and allegations. While it is true that some funds have had a rough year so far, a good portion of funds are seeing decent to good profits on their invested assets. It remains to be seen if these positive trends will continue through the rest of 2012. It is evident to some that in the wake of the Dodd-Frank Act that regulation may begin to increase on hedge fund investments across the globe.