Hedge funds?

[brownie]

Now I am no Henry Highroller or Sammy stockbroker but just wondering if anyone knows anything about Hedge funds.A guy I know just got a job with an investment firm and is saying 80% returns,which I find to be crazy.Just want to get some more info and call is bluff.So if any investing savvy guys can help.Thanks for any info.

[Slava]

What kind of info would you like? Its not my forte, but I can give you some info for sure.

[Flames89]

Hedge Funds are similar to normal Funds (like Fidelity) except they frequently deal with other instruments like derivatives and usually investors have a limit of around $100,000 to $500,000. They are hot lately because they have had good returns in the past - but this is more in the order of 20-40%.

There is a chance that his firm had 80% last year, but it is unlikely - and I am sure there is a website where you can see the results. However, in Hedge Funds, management get paid for the performance of the fund which means they can do VERY WELL.

Hedge Funds are not fool proof though. Look at Long Term Capital Management, a hedge fund set up by industry experts and mathematical geniuses: http://en.wikipedia.org/wiki/Long-Te...tal_Management

Or look at what happened to Amaranth last year.

[Slava]

That basically sums them up. There are other fund managers (on the retail, mutual fund side of things) that also get paid on performance, and those funds also do well.

The basic point of a hedge fund is that they while they are selling some holdings they are making corresponding buys, and vice-versa. This allows them to "hedge" the risks. There is a lot less regulation surrounding the funds in general.

[brownie]

Originally Posted by Slava

What kind of info would you like? Its not my forte, but I can give you some info for sure.

Just wondering if 80% is possible,there has to be a catch,I didnt get into it with him because i figured he was full of it.Just seems too goo to be true.How come everyone isnt doing it then??

[firebug]

As an investment banker, our brokerage deals with many hedge funds.

Typically they are available to wealthy (accredited) investors, who use them as a portfolio management tool to place bets on market trends or to protect against exposure other assets they own may carry (hedge).

In a sense they are like mutual funds on steroids.A mutual (or pension) fund typicallylooks to create value over the long term with a minimum of risk by owning (long) various securities such as stocks, bonds, real estate, commodities, etc., while trying to preserve existing value.

Hedge funds will position themselves (whether they think it will go up or down) around a particular segment of the economy (eg. oil & gas) using leverage, options, derivatives and the like.

When they bet correctly, they can have huge returns (> 100%), when they are incorrect they can have massive losses (google "amaranth partners").

They are a dangerous part of the market for most investors as they do not have the same type of disclosure or performance reporting guidelines as regulated mutual funds. However, since most require initial investments of >$100,000 it is largely a game played by the already wealthy.

Let me know if you have any more specific questions.

Best,

~bug

[Slava]

Originally Posted by brownie

Just wondering if 80% is possible,there has to be a catch,I didnt get into it with him because i figured he was full of it.Just seems too goo to be true.How come everyone isnt doing it then??

Well the 80% is possible, but unlikely. Certainly not a guaranteed or long-term rate of return. (one year you might get 80, but if you lose the same 80 the following year then you're behind!).

I agree with your last line...if its that easy then why isn't everyone doing it? Its because its not that easy....not even a majority of fund managers beat the index every year, and they definitely should know what they are doing!

[brownie]

Originally Posted by firebug

As an investment banker, our brokerage deals with many hedge funds.

Typically they are available to wealthy (accredited) investors, who use them as a portfolio management tool to place bets on market trends or to protect against exposure other assets they own may carry (hedge).

In a sense they are like mutual funds on steroids.A mutual (or pension) fund typicallylooks to create value over the long term with a minimum of risk by owning (long) various securities such as stocks, bonds, real estate, commodities, etc., while trying to preserve existing value.

Hedge funds will position themselves (whether they think it will go up or down) around a particular segment of the economy (eg. oil & gas) using leverage, options, derivatives and the like.

When they bet correctly, they can have huge returns (> 100%), when they are incorrect they can have massive losses (google "amaranth partners").

They are a dangerous part of the market for most investors as they do not have the same type of disclosure or performance reporting guidelines as regulated mutual funds. However, since most require initial investments of >$100,000 it is largely a game played by the already wealthy.

Let me know if you have any more specific questions.

Best,

~bug

Thanks Bug,the 100 grand about seals it for me,seeing that I would let this guy to run a lemonade stand,dont think I'll be giving him that amount of cash.

[firebug]

Originally Posted by brownie

Thanks Bug,the 100 grand about seals it for me,seeing that I would let this guy to run a lemonade stand,dont think I'll be giving him that amount of cash.

I see two types of Hedgies.

One wears a flashy suit, expensive watch, cufflinks, and is even more arrogant than an i-banker (which takes a lot ;-) ).

The other types are the nerdy analytics with mismatched clothes and poor hygiene.

They can make an amazing amount of money since not only do they take a management fee (like a mutual fund) but also profit share once the annual return hits a certain level. IE. they get to keep a third of any returns over 12%.

~Bug

[nfotiu]

In the US, you actually have to be a millionaire by law to invest in hedge funds. And they are now talking about raising that to having 2.5 million in investments before you are allowed.

[icarus]

I don't know much about hedge funds, but I have a friend in NY who works for a hedge fund. Her job is simply to chat with investors and keep them happy (in a non-sexual way!); she gets paid to go to fancy dinners every night, and they fly her to dinners in Paris, Singapore, HK, London, etc.

She is doing very well for herself; I saw her drop $400 on a bottle of wine when I last visited her. And she didn't even study business; she knew nothing about investments when she got hired but she did have a Stanford degree and that was enough to land her the position.

Sorry, my little anecdote has added nothing to the conversation except to show that there are sweet jobs in the hedge fund market.

[Wookie]

Originally Posted by icarus

I don't know much about hedge funds, but I have a friend in NY who works for a hedge fund. Her job is simply to chat with investors and keep them happy (in a non-sexual way!); she gets paid to go to fancy dinners every night, and they fly her to dinners in Paris, Singapore, HK, London, etc.

She is doing very well for herself; I saw her drop $400 on a bottle of wine when I last visited her. And she didn't even study business; she knew nothing about investments when she got hired but she did have a Stanford degree and that was enough to land her the position.

Sorry, my little anecdote has added nothing to the conversation except to show that there are sweet jobs in the hedge fund market.

Hardly, now I'm aroused!!

[MoneyGuy]

Generally, you have to be a "sophisticated investor" to even buy a hedge fund. The rules vary by province, but it requires a certain level of income or net worth. I'm trying to recall the numbers from my CFP studies, but in Alberta I think a required income of 200K for an individual or around 350K for a couple.

Hedge funds are dangerous. The returns can be terrific but the risk is high. Hedge fund managers can practise strategies that mutual funds cannot. One good strategy is short selling. MF mgrs can't short sell. Short selling by a capable manager can save your bacon in a market downturn.

If you have a portfolio of 500K or more, you might consider putting a small amount into a hedge fund. But choose carefully. They're mutual funds on steroids. Most financial planners can't sell hedge funds. You have to be securities licensed to deal with these things.