Hedge Fund Industry

Hedge Fund Industry Basics

Here are a few trends, facts, notes about hedge funds that I have picked up and some people might not know. Eventually I will combine several posts similar to this to create a 1 page hedge fund industry snapshot for professionals in the field, specifically for family offices and financial advisors who need to get up to speed on the latest developments.

Not all hedge funds are risky relative to mutual fund, SMA, or ETF product alternatives
There are around 10,000 hedge funds in existence with 30 new ones created each quarter
Around 80% of all hedge funds have under $100M in total assets under management (AUM)
According to Magnum Funds hedge fund returns have outperformed standard equity and bond indexes with less volatility and less risk of loss than equities
Most hedge fund assets are being gained by the industry giants with over $2B/AUM
Institutional investors make up a huge portion of the hedge fund investor base, their risk controls sometimes only allow them to invest in larger funds. They also have a great need for highly researched uncorrelated returns to safegaurd their assets. In fact the more research-heavy a large institution is the higher the chance will be that they invest in alternative assets such as hedge funds. This is ironic given the risky profiles they are given by the mass media
Most hedge fund managers are highly professional and ethical
Most hedge fund managers or portfolio management teams have backgrounds or unique information/experience advantages in the market.
Many of the most talented traders and money managers start hedge funds because the payouts are higher for great performance. Yes, the investor pays more but they are also getting premium products. Would you try to find the cheapest surgean or least expensive childcare provider possible? Probably not. When results matter so does expertise and performance.
Hedge Fund typically charge fees of 2% on base assets and 20% of any performance profits they bring in. Some hedge funds are only charging 1 or 1.25% base fees while they are still considered emerging managers.
Minimum investments in hedge funds range from $100k to $50M depending on the clout and size of the fund at hand.
In 2005 Absolute Return Magazine found that 196 hedge funds had over $1B in total assets under management (AUM)

- Richard

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