Hedge Funds (2024)

FAQs

How to answer why hedge funds? ›

Why Work at a Hedge Fund? Hedge funds are good if you're extremely passionate about the public markets, and you want to follow companies and other securities rather than work on deals. “Extremely passionate” means: You're constantly reading about the financial markets in books and other media.

The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.

The normie GameStop investors who recognized the opportunity for a short squeeze were right — the stock was over-shorted, they saw their chance, and they seized it. The episode took out Melvin Capital — even after getting extra money injected, the hedge fund eventually went under.

Most hedge funds are well run and do not engage in unethical or illegal behavior. However, with intense competition and large amounts of capital at stake, there are less than scrupulous hedge funds out there.

Risk Management

Hedge funds were developed, in part, to help investors manage investment risk. Their market-neutral, or balanced, approach to investing helps seek out positive returns by investing in varied instruments over long- and short-term periods.

Hedge funds seem to rake in billions of dollars a year for their professional investment acumen and portfolio management across a range of strategies. Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM).

Most hedge and private equity funds target a net IRR of 15% for their investors (after fees). This provides their investors with a meaningful premium over historical average stock market returns of 8%.

But lately, Wall Street has been wondering if hedge funds have reached Peak Pod. Returns dropped markedly at many multistrats in 2023. The average fund in the class returned 5.4%—even as the Nasdaq Composite and the S&P 500 cranked out total returns of 45% and 26%, respectively.

The fee is typically 2% of a fund's net asset value (NAV) over a 12-month period. A performance fee: also known as an incentive fee, this second fee is viewed as a reward for positive returns. Performance fees are typically set at 20% of the fund's profits.

While most assume he does, it is hard to say for sure, as he no longer posts video updates with screenshots of his portfolio holdings. As of 2023, several different sources reported Gill's estimated net worth to be around $30 million.

Who lost billions shorting GameStop? ›

Melvin Capital: Experienced a 49% loss in its investments in the early months of 2021 and required a $3 billion bailout. Citron Capital: Suffered 100% losses on its GameStop positions during the stock's bullish rally.

Key Takeaways. Hedge funds have been a major force on Wall Street since the 1990s, attracting trillions of dollars of investor money. However, over the past decade, hedge funds, on average, have underperformed their benchmarks, with several closing up shop.

Who Is the Richest Hedge Fund Manager? Ken Griffin of Citadel is both the richest hedge fund manager and the highest paid. In 2022, he earned $41. billion, and by the beginning of 2023 his net worth was estimated at $35 billion.

The recent Forbes 400 (richest American billionaires) list has about 112 people, by my count, who made their fortunes in some form of Finance, Investments, Hedge Funds, insurance or banking.

Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.

Why would you want to work for a hedge fund and not a mutual fund? This question varies by individual, but think about examples like the following: You have a specific interest in the fund manager's strategy. You were always interested in merger arbitrage, fixed income arbitrage, etc.

Salary and perks. Two major attractions of being a hedge fund manager are the money and the lifestyle. Salaries and bonuses are hundreds of thousands and fund managers typically have a share in their own fund – meaning that if the fund does well there's no limit to the income.

There are two basic reasons for investing in a hedge fund: to seek higher net returns (net of management and performance fees) and/or to seek diversification.

Hedge funds offer a much higher pay ceiling than investment banking, (sometimes) better hours and work/life balance, and the chance to do more interesting work.