Hedge funds

[mustang1]

What is your opinion of hedge funds?

How is the money made? I see they are a high risk/high reward system. But if it's high risk, then the high rewards only come a very small percentage of times?

How do they pay staff salary? Do they have any clauses in the contract that is a "not normal"?

Why are there so many hedge funds? Is it easy (you know, relatively speaking) to set one up?

 

[Mike Ayling]

What is your opinion of hedge funds?

Strictly for the big players who know what they are doing.

How is the money made? I see they are a high risk/high reward system. But if it's high risk, then the high rewards only come a very small percentage of times?

That is not what the promoters will tell you!

How do they pay staff salary? Do they have any clauses in the contract that is a "not normal"?

Staff salaries are paid out of your money!

Why are there so many hedge funds? Is it easy (you know, relatively speaking) to set one up?

Depends on the jurisdiction I guess. Steer clear of those based in out of the way places!

I am a risk averse person and stick to "blue chips"

 

[Drago]

In esse its gambling on the prediction of market trends, that sort of thing. Not something I'd go near but someone with a sufficient brain and knowledge could do well.

 

[MichaelW2]

It seems to be more of a low risk, high reward strategy, taking advantage of low regulation.

UK investment funds do not like high risk, ie business startups.

 

[roubaixtuesday]

As I understand it, originally the concept was to "hedge" the market ie to take some of the risk away from future fluctuations eg by guaranteeing a future exchange rate. Naturally, you pay one way or another for someone else to take this sort of risk, and if you're good at predicting future markets, handsome profits are to be made by taking on that risk.

Now, however, they're best thought of as straightforward tax avoidance schemes to remove profits from the juristiction where trade takes place to one where the tax rate is low. This is done, for example, by borrowing money from an entity based in a low tax environment, that entity makes the profit whereas the trading company makes a very small profit or a loss due to the large interest payments going offshore.

See for example (US based, but same principle elsewhere)

https://www.investopedia.com/articles/investing/101415/2-ways-hedge-funds-avoid-paying-taxes.asp

 

[PaulSB]

What is your opinion of hedge funds?

Parasites who are greedy in the good times and run for cover at the slightest sign of trouble.

 

[MichaelO]

What is your opinion of hedge funds?

How is the money made? I see they are a high risk/high reward system. But if it's high risk, then the high rewards only come a very small percentage of times?

How do they pay staff salary? Do they have any clauses in the contract that is a "not normal"?

Why are there so many hedge funds? Is it easy (you know, relatively speaking) to set one up?

Hedge funds take capital from external funds/wealthy individuals and (usually through various complex structures) invest in markets to maximise returns for clients, while taking a generous fee for themselves. Most pension funds invest into hedge funds. Very similar to investment banking "traders" - the main difference is that they invest the banks money, rather than other peoples.

Staff receive salary, but that's a tiny part of their pay. They share a portion of the profit made (typically 15-20%) - that will rack up into multi millions for a successful hedge fund.

It's easy to set up a fund - however, either you need a lot of cash yourself, or have a track record of being successful in the past to encourage pension funds/other clients to give you their money to invest.

As for "run for cover at the slightest sign of trouble" - quite the opposite. That's when they'll invest even more cash. And it's extraordinarily difficult to "run away" from what are usually very illiquid investments.