So who invests in Hedge Funds?
- Thread starter Eug
- Start date
Minumum initial investment for the Gabelli Global Fund is $150,000. You have that kind of money? Management fee is 2.5% What percentage would this represent to the rest of your portfolio? In what asset classes and percentages are you invested in?
I notice the wonderful performance is from before the dot-com crash. Seems a very risky place to put your nest egg.
Personally, I invest in mutual funds (S&P 500, world, and small cap) plus a bunch of cash at etradebank and in CDs so I won't need to touch the mutual funds in case of emergency or job change.
Personally, I invest in mutual funds (S&P 500, world, and small cap) plus a bunch of cash at etradebank and in CDs so I won't need to touch the mutual funds in case of emergency or job change.
- Mar 11, 2000
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<< Minumum initial investment for the Gabelli Global Fund is $150,000. You have that kind of money? Management fee is 2.5% What percentage would this represent to the rest of your portfolio? In what asset classes and percentages are you invested in? >>
<< I notice the wonderful performance is from before the dot-com crash. Seems a very risky place to put your nest egg.
>>
Heh. No I don't have this kind of money. This would be a one time investment and would represent a smaller component of my (small) portfolio. I've got some ultraconservative pension stuff (little bit of everthing safe), as well as ultrarisky (ie. heavy duty negative territory over the last year) tech and small cap mutual funds.
By the way, this is Canada, but much of the logic as it pertains to the US is the same. This should qualify as Canadian content (for my RSP). My investment advisor seems to like these (to round out a portfolio), but that's probably partially because of the nice juicy commission. Mind you the commission doesn't seem any higher than some other funds, and he's advised before that I invest a bit in standard bank mutual funds, which surprised me since he gets no commission from those.
I work at a hedge fund. If you any questions regarding the industry or how they are usually run, give me a PM.
Eug......... do you have access to Money Sense magazine? A couple issues back they had some info on hedge funds. I'll look for the issue later and report back.
Cheers,
Aquaman
Cheers,
Aquaman
By the way, this is Canada, but much of the logic as it pertains to the US is the same. This should qualify as Canadian content (for my RSP). My investment advisor seems to like these (to round out a portfolio), but that's probably partially because of the nice juicy commission. Mind you the commission doesn't seem any higher than some other funds, and he's advised before that I invest a bit in standard bank mutual funds, which surprised me since he gets no commission from those.
The standard fees on a hedge fund are usually much higher than mutual funds. The average mutual fund has a 1% management fee whereas hedge funds usually have something called 1 plus 20. 1 plus 20 means a 1% annual management fee and 20% performance fee. If the fund makes a profit for the year, the fund manager takes 20% of the profit made. This is only the case if the fund makes money. If they lost money, the performance fee doesn't kick in until the investor breaks even, also known as a high water mark.
The really good hedge funds out there have really high management fees some of them like 2.5 plus 50. Those funds tend to be very high performing funds with a very long track record.
The standard fees on a hedge fund are usually much higher than mutual funds. The average mutual fund has a 1% management fee whereas hedge funds usually have something called 1 plus 20. 1 plus 20 means a 1% annual management fee and 20% performance fee. If the fund makes a profit for the year, the fund manager takes 20% of the profit made. This is only the case if the fund makes money. If they lost money, the performance fee doesn't kick in until the investor breaks even, also known as a high water mark.
The really good hedge funds out there have really high management fees some of them like 2.5 plus 50. Those funds tend to be very high performing funds with a very long track record.
No I don't have this kind of money. This would be a one time investment and would represent a smaller component of my (small) portfolio.
You don't have this kind of money, but it would only represent a small component of your portfolio? I don't understand your meaning. You mean $150,000 would represent a small component of your portfolio? Your porfolio description below is a bit vague. You may wish to consider something like Vanguard's Total Market Mutual fund (or similar) as the bulk of your portfolio. Suggest you visit financial websites such as Morningstar.com. You should also try to stay the he|| away from load funds and generally speaking anyone who gains a commission, and be careful about anyone here who wants you to PM them.
I've got some ultraconservative pension stuff (little bit of everthing safe), as well as ultrarisky (ie. heavy duty negative territory over the last year) tech and small cap mutual funds. By the way, this is Canada, but much of the logic as it pertains to the US is the same. This should qualify as Canadian content (for my RSP). My investment advisor seems to like these (to round out a portfolio), but that's probably partially because of the nice juicy commission. Mind you the commission doesn't seem any higher than some other funds, and he's advised before that I invest a bit in standard bank mutual funds, which surprised me since he gets no commission from those.
You don't have this kind of money, but it would only represent a small component of your portfolio? I don't understand your meaning. You mean $150,000 would represent a small component of your portfolio? Your porfolio description below is a bit vague. You may wish to consider something like Vanguard's Total Market Mutual fund (or similar) as the bulk of your portfolio. Suggest you visit financial websites such as Morningstar.com. You should also try to stay the he|| away from load funds and generally speaking anyone who gains a commission, and be careful about anyone here who wants you to PM them.
I've got some ultraconservative pension stuff (little bit of everthing safe), as well as ultrarisky (ie. heavy duty negative territory over the last year) tech and small cap mutual funds. By the way, this is Canada, but much of the logic as it pertains to the US is the same. This should qualify as Canadian content (for my RSP). My investment advisor seems to like these (to round out a portfolio), but that's probably partially because of the nice juicy commission. Mind you the commission doesn't seem any higher than some other funds, and he's advised before that I invest a bit in standard bank mutual funds, which surprised me since he gets no commission from those.
- Mar 11, 2000
- 24,176
- 1,816
- 126
To be clear:
Most of RSP monies will be tied up in a conservative pension plan, so I can accept some risk in other investments. For the hedge: $150000 is WAAYY out of my range. This will be a one shot much smaller investment, and will over time be a fairly small part of my portfolio, so again, I can accept some risk.
I don't have any Money/Business mag subscription. In fact, lately I haven't been even reading the paper. The only thing that stands out in my mind though is the Long Term Capital Hedge Fund debacle, but I don't know much about about it. Anyone know more (crib notes version)? It seems like a clear illustration of the potential risk of hedge funds, but isn't necessarily representative:
WASHINGTON, D.C. - October 2, 1998 - Recent media reports about Long Term Capital Management's huge losses during August have once again resulted in the media conveying the wrong impression that all hedge funds are high risk. However, Long Term Capital Management's losses were caused by the use of an extreme amount of leverage, up to 30 times its capital, which is atypical of hedge funds. Long Term Capital Management was able to obtain such excessive levels of leverage because of the reputation of its management team, which included former vice-chairman of Salomon Brothers, John Meriwether, Nobel Prize winners Robert Merton and Myron Scholes, and former star Salomon traders Lawrence Hilibrand and Eric Rosenfeld.
Hedge funds investing in U.S. and international stocks, which make up the vast majority of hedge funds, typically leverage no more than two times capital, with most using significantly less leverage than that. Many hedge funds use no leverage at all.
"Hedge funds as a group suffer from popular misconceptions that arise when a few funds suffer big losses," says Dion Friedland, founding president of the Hedge Fund Association and chairman of Magnum Funds. "We saw this in 1994 when a few well known global macro hedge funds suffered sharp declines due to their leveraged European bond exposure, when the Fed raised interest rates. Most hedge funds, however, are not global macro funds that place large directional investments in any number of financial instruments while sometimes using lots of leverage. Nor are they are highly leveraged bond arbitrageurs like Long Term Capital Management. The vast majority of hedge funds make consistency of return, rather than magnitude, their primary goal, looking for absolute returns. Most hedge fund managers invest large amounts of their own capital in their funds and are motivated not only to increase it but to preserve it."
Friedland uses data from bear markets to back up his claim. In 1987, the year of the crash, while the Standard & Poor's 500-stock index rose 5.24 percent and growth mutual funds only 1.02 percent, hedge funds returned 14.49 percent, as reported by Business Week ("Gaining An Edge With Hedge Funds," July 29, 1996). Again, in 1990, when the S&P and equity growth mutual funds registered returns of 3.11 percent and 3.82 percent, respectively, hedge funds finished the year up 10.97 percent.
On the other hand, he concedes, "Most hedge funds tend to trail long-only funds during bull runs, due to the fact that when the markets go up, their short positions - i.e., their insurance - cost them money."
Friedland underscores the futility of trying to pigeonhole all hedge funds as risky by comparing the variety of hedge fund strategies to the variety of animals in the zoo. Macro investing, for example, he likens to grizzly bears - sudden, aggressive. "But macro hedge funds are only one species in a wide universe - and they differ from other hedge funds as much as grizzlies differ from other animals."
Among the scores of hedge fund strategies, many are significantly less volatile than mutual funds. These strategies include merger arbitrage, which attempts to take advantage of the movements expected to occur in the stock price of two companies undergoing a merger. Convertible bond arbitrage, another strategy, involves buying convertible bonds and simultaneously selling short the underlying stock. If the stock price falls, the investment is protected - and often enhanced - by the short position, while, no matter the stock price, the investment generates profits from interest on the bond and the short sale proceeds. The strategy of market-neutral funds is to invest equal dollar amounts in long and short positions, usually in the same sector of the market, in the expectation that those stocks that are long will rise more than the shorts in bull markets and fall less than the shorts in bear markets.
This strategy of both buying stocks and selling them short is how hedge funds originally got their name in the early 1960s. Managers back then were merely trying to "hedge their bets," with the goal of preserving capital.
"That's how many hedge funds still function today," says Friedland, "though with the term now referring essentially to any fund using an alternative investment style (some of which may not even hedge risk), it is easy to see why the more conservative and less volatile hedge fund strategies get confused with the risk takers."
For more information, contact Dion Friedland at dfriedland@hedgefundassn.org or visit the HFA Web site at www.hedgefundassn.org . The Hedge Fund Association is an international not-for-profit association of hedge fund managers, service providers, and investors.
Also see testimony about Long Term Capital and hedge funds in general given by Steven A. Lonsdorf, president, Van Hedge Fund Advisors International, Inc., before the U.S. Congressional Committee on Banking and Financial Services , October 1, 1998.
Most of RSP monies will be tied up in a conservative pension plan, so I can accept some risk in other investments. For the hedge: $150000 is WAAYY out of my range. This will be a one shot much smaller investment, and will over time be a fairly small part of my portfolio, so again, I can accept some risk.
I don't have any Money/Business mag subscription. In fact, lately I haven't been even reading the paper. The only thing that stands out in my mind though is the Long Term Capital Hedge Fund debacle, but I don't know much about about it. Anyone know more (crib notes version)? It seems like a clear illustration of the potential risk of hedge funds, but isn't necessarily representative:
WASHINGTON, D.C. - October 2, 1998 - Recent media reports about Long Term Capital Management's huge losses during August have once again resulted in the media conveying the wrong impression that all hedge funds are high risk. However, Long Term Capital Management's losses were caused by the use of an extreme amount of leverage, up to 30 times its capital, which is atypical of hedge funds. Long Term Capital Management was able to obtain such excessive levels of leverage because of the reputation of its management team, which included former vice-chairman of Salomon Brothers, John Meriwether, Nobel Prize winners Robert Merton and Myron Scholes, and former star Salomon traders Lawrence Hilibrand and Eric Rosenfeld.
Hedge funds investing in U.S. and international stocks, which make up the vast majority of hedge funds, typically leverage no more than two times capital, with most using significantly less leverage than that. Many hedge funds use no leverage at all.
"Hedge funds as a group suffer from popular misconceptions that arise when a few funds suffer big losses," says Dion Friedland, founding president of the Hedge Fund Association and chairman of Magnum Funds. "We saw this in 1994 when a few well known global macro hedge funds suffered sharp declines due to their leveraged European bond exposure, when the Fed raised interest rates. Most hedge funds, however, are not global macro funds that place large directional investments in any number of financial instruments while sometimes using lots of leverage. Nor are they are highly leveraged bond arbitrageurs like Long Term Capital Management. The vast majority of hedge funds make consistency of return, rather than magnitude, their primary goal, looking for absolute returns. Most hedge fund managers invest large amounts of their own capital in their funds and are motivated not only to increase it but to preserve it."
Friedland uses data from bear markets to back up his claim. In 1987, the year of the crash, while the Standard & Poor's 500-stock index rose 5.24 percent and growth mutual funds only 1.02 percent, hedge funds returned 14.49 percent, as reported by Business Week ("Gaining An Edge With Hedge Funds," July 29, 1996). Again, in 1990, when the S&P and equity growth mutual funds registered returns of 3.11 percent and 3.82 percent, respectively, hedge funds finished the year up 10.97 percent.
On the other hand, he concedes, "Most hedge funds tend to trail long-only funds during bull runs, due to the fact that when the markets go up, their short positions - i.e., their insurance - cost them money."
Friedland underscores the futility of trying to pigeonhole all hedge funds as risky by comparing the variety of hedge fund strategies to the variety of animals in the zoo. Macro investing, for example, he likens to grizzly bears - sudden, aggressive. "But macro hedge funds are only one species in a wide universe - and they differ from other hedge funds as much as grizzlies differ from other animals."
Among the scores of hedge fund strategies, many are significantly less volatile than mutual funds. These strategies include merger arbitrage, which attempts to take advantage of the movements expected to occur in the stock price of two companies undergoing a merger. Convertible bond arbitrage, another strategy, involves buying convertible bonds and simultaneously selling short the underlying stock. If the stock price falls, the investment is protected - and often enhanced - by the short position, while, no matter the stock price, the investment generates profits from interest on the bond and the short sale proceeds. The strategy of market-neutral funds is to invest equal dollar amounts in long and short positions, usually in the same sector of the market, in the expectation that those stocks that are long will rise more than the shorts in bull markets and fall less than the shorts in bear markets.
This strategy of both buying stocks and selling them short is how hedge funds originally got their name in the early 1960s. Managers back then were merely trying to "hedge their bets," with the goal of preserving capital.
"That's how many hedge funds still function today," says Friedland, "though with the term now referring essentially to any fund using an alternative investment style (some of which may not even hedge risk), it is easy to see why the more conservative and less volatile hedge fund strategies get confused with the risk takers."
For more information, contact Dion Friedland at dfriedland@hedgefundassn.org or visit the HFA Web site at www.hedgefundassn.org . The Hedge Fund Association is an international not-for-profit association of hedge fund managers, service providers, and investors.
Also see testimony about Long Term Capital and hedge funds in general given by Steven A. Lonsdorf, president, Van Hedge Fund Advisors International, Inc., before the U.S. Congressional Committee on Banking and Financial Services , October 1, 1998.
LTCM was a highly leveraged Macro hedge fund. The reason why it collapsed was because many of its investments were in highly illiquid vehicles which could not be unloaded without taking huge losses. Because it was highly leveraged, when their investments started going south, they couldn't raise enough money to offset margin calls because their investments were illiquid and it would take time to get out of them without taking losses. That is what caused LTCM's collapse.
A lot of hedge funds don't use this kind of leverage, especially after the last 2 years. But macro hedge funds do use it along with fixed income, currency and derivatives based hedge funds.
That is a nice article you found. It's funny because Dion Friedland is a big investor in our fund. Anyway, investments in hedge funds usually requires a great deal of capital. Investments in them should usually be made as part of a diversification in a portfolio and not as a sole investment vehicle. If you don't know what you are getting yourself into, I wouldn't put my money in them. There are so many different types of hedge funds and so many different strategies. If you are serious about investing in them, I would read up on them.
A lot of hedge funds don't use this kind of leverage, especially after the last 2 years. But macro hedge funds do use it along with fixed income, currency and derivatives based hedge funds.
That is a nice article you found. It's funny because Dion Friedland is a big investor in our fund. Anyway, investments in hedge funds usually requires a great deal of capital. Investments in them should usually be made as part of a diversification in a portfolio and not as a sole investment vehicle. If you don't know what you are getting yourself into, I wouldn't put my money in them. There are so many different types of hedge funds and so many different strategies. If you are serious about investing in them, I would read up on them.
Still looking for the article. Sorry dude, I have a buddy visiting frrom out of town, doing the tourist thing for the rest of the week.
Cheers,
Aquaman
Cheers,
Aquaman
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