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Hedgefund Intro

In: Other Topics

Submitted By miragekiss
Words 935
Pages 4
Intro to hedgefund

Belongs to alternative - regulatory comoensation trading
R: accredited standards, like 250000 above, of 1million or more after financial crisis net worth
C: offer them based on how much they earn from client
T: use leverage, so can take long (buy) or short (sell), can do whatever you want with the money

After 2001
Classification
Not fixed classification
Futures funds
Event driven
Relative value (arbitrage = riskless)
Equity
Funds of funds

1st 4 are named single manager funds, underlying investments that do not invest in another hedgefund

last F: invest in a diversified groups of funds

fund mortality – no of hedgefunds that …. average lifespan of hedgefund – 4.4 years

hedgefund fees***** management fees: collected regardless of fund performance, usually 2% drawn from customer, take reference to the initial year performance fees: incentive fees, eg. Beyond a certain level of money earned, I will draw a % of about usually 20% of the profit.
Usually called: two-twenty fees

Forprotection:
You need to
- achieve a high watermark provision – only pay fees only if net asset value increases from previous year. (have profit then have incentive) (only when you exceed the highest value of record like a high score, must break high score
- hurdle rate: fee paid if the fund return exceeds a particular threshold

example: to calculate the performance fee, must minus management fee first then take the percentage

250million increase to 295million
2/25 fee structure

management: 2% of 250m performance: percentage returen

high watermark: effects of incentive fee: result in pervase incentive motivate the manager by putting his interest alighned to invetor’s interest: eg. Manager want volatitlity but investor don’t want

solutiions: optimal contracting

manager can invest part of huis

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