1: hedge fund meaning
2: how hedge fund works
3: helps of hedge
4: fee and structure
Quick Pick :
Funds that are raised by investing manager from high net worth individuals to diversify and hedge the investment and risk is what known hedge fund.
The hedge fund are working world wide and managed millions and billions of dollars over the past year. Each and every day hedge funds industries are increasing dramatically.
Unlike mutual fund the hedge funds would have less individual with high net worth. The hedge funds make more returns than others funds in the world. .
For the reason hedge funds take more risk than others funds managers. So when compared to other funds in the world. Hedge fund are high return with high risk place.
1: hedge fund definition
Hedge = hedge mean surrounding something with limits.
Funds = collection of money.
Hedge fund is the risk limits are surrounded by the funds.
So the person who are hedge funds managers are able to do any investment with investors money.
But they have strict rules not to loss more than certain limits, because they don’t need investment from normal investor.
They take investment from high net individual, pension funds managers, mutual fund manager extra…
Once they lose money, investor start to take back over their money from it. But hedge manager don’t lose easily, so the funds works great.
2: how hedge fund works
Now have a look how hedge funds work. This funds managers have authority to invest in anything like stock, bonds, real estate, buy business extra….
Not like mutual fund manager, mutual fund managers are only able to invest in stocks and bonds.
But the hedge fund manager are only more focus on high-quality stocks. And bought that to make great returns over time.
On the other hand, Others funds are invest in more diverse things. But the hedge funds are take risk on very less things to maximize more return.
That’s makes hedge fund manager more worth and unique.
But most high net worth individual or accredited investor are not invest with them simply, they check the hedge fund manager track record of how long he would
Made it great returns.
Suppose if the hedge manager have great track record then it’s attract more big investor to their portfolio.
So hedge funds helps big investor in many ways. Let’s have a look.
3: helps of hedge funds
The people’s who are sitting with millions and even billions of dollars with them.
The people’s who don’t have any idea where to put their money into it.
This person would invest in hedge fund by seeing hedge funds track record for long term.
The hedge funds make nearly 40% return each year Which is great returns when compared to others fund.
But the 40% is not guaranteed, they might be make 20 percent or 10 perfect or even loss sometimes.
But the hedge funds have difference structure and fee for their work.
4: fee and structure
Let’s say your net worth would be 100 millions and but you gave the $50 millions with hedge fund manager.
So like you there are 19 individual or institution put the same $50 million in to hedge fund.
Which make total assets of $1000 millions or $1 billon.
However hedge fund manager make 35% return on the total assets this year.
Before you invest on the hedge fund they gave you terms and conditions of how much they charge on your profits.
Which means share on your profits money and annual maintenance fee for your total assets.
So let’s make 30% profits shares and 3% annual fee for maintenance of your assets.
If hedge fund manager made this year 35% return on $1 billions dollars would be $350 millions.
So this 1 billion dollars would be collected totally by 20 person. If you divide the 20 by 1 billion dollars.
You get each person has $50 millions worth of assets inside the hedge fund. And each have $17.5 millions in profits by dividing the total profits of $350 millions with 20 person.
So this each individual or institutional want to share 30% on their profits. Which is $ 5.25 millions to the hedge fund manager.
Which leave each person with profits of $12.25 millions. Next to maintain their $12.25 millions annually hedge manager charge 3% annual fee on $12.25 millions.
Which is $367,500 dollars this year. And leave each hedge fund investors with $11.8 million dollars.
So 20 each person invested $50 millions made it $11.8 million at the end of the year by invested into hedge fund.
And hedge fund manager earned $5.6 millions from each 20 individual’s totally $112 million by taking one of the high big risk on 1 billion dollars on the asset.
Finally your $50 million dollars made it 23.6 percent return in one year.
And your asset after the profits of this year worth $61.8 million if you not redeem any money from hedge funds.
According to above calculations Once if you won’t get any right answer using your own mind, then use your mobile calculator to get the accurate answers.
Market rule: #100116
Hedge funds is one of the market participants so it is a market rule, if your hedge funds manager or investors in the hedge funds, you could able to raise the complaint regarding any fraud or cheat to the security and exchange commission.
If your investors and not comfortable or align investing with based on market rules please learn about how to regulate your investments under your control with use of Rule investing.