Originally posted by: LegendKiller
Originally posted by: iversonyin
Originally posted by: PAB
Originally posted by: iversonyin
Originally posted by: PAB
Originally posted by: iversonyin
Originally posted by: Scribe
The thing with hedge funds is that they have so much damned money, they can 'move' markets.
I used to work at one... they had an average of 20% return every year, because of how much money they had at their disposal.
You mean they are leverage up their arse (2-10 times buying power)? Hedge funds get rich off their fees....even if they lose money for their investors...
You may not have heard of a high watermark provision. Your statement is wrong.
Not every funds have one. And if you under perform your peers, your fund is likely going under within a year. Either way, the managers still make the management fees. 1-2% management fees are charge either way most of the time. Its the 20% profit split that is tie to the provision. 1-2 % of a lot of money is a lot of money. That's how Cramer got rich- part of it anyway.
I did the homework - he was the second largest partner in his fund so he was not only working other people's money he was using his.
Lets do the math.
$500 million = 10 million @ 2% management fee
With a high watermark provision, and picking up 20% of the profit of the fund at the end of the year while owning a large share would be impressive. I'm under the impression that where he made his real money was the share in the fund which averaged 24% year over year that was compounded every year with his management fee and profit bonus.
I never doubt that he didn't make money for his investors. I'm just saying ANYONE that can start a hedge fund can get rich off the fee.
Lets for argument sake...Cramer's investors don't like the return of his fund and cash out after 1 year. He keep the fees. 10 Million is still a lot of money for 1 year pay- I don't know how much you make last year, but I sure as hell know most Americans don't make 10 mil in their lifetime.
Many of the shadier hedge funds (or even mutual funds but its harder there) make a ton of money in the short term. They do this by actively seeking highly risky investment, which they know they can replicate for 2-3 years, whether it be Forex, options strategies, banking a hot emerging sector, futures/forwards, or some other speculative issue.
They utilize contacts to bring in a ton of money at first, bank a lot themselves, and since most strategies that yield a lot will also attract more money, their alpha source goes down. Since they usually can't switch over to another investment pattern immediately, they fold.
By that time they have made millions. Some times they can just start a new fund.
Overall, he isn't great. I see him on and I equate him to nothing more than a Jerry Springer of investments and I'd trust him about as much as Springer to guide me in my investment plans.
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