Who invests in Hedge Funds?
Who invests in Hedge Funds?
When I think of Hedge Funds the first thing that comes to my mind is money lots and lots of money. Then I ask myself how I can get my piece of the Hedge Funds money pie. Where can I sign up for Hedge Funds, who do I give my money. How do I get on the hedge fund band wagon? So I decided to do a little research on how to get in the hedge fund business and how do they make so much money off of Hedge Funds.
First let’s define what a hedge fund is. Basically a hedge fund type of investment partnership that generally uses creative and aggressive investment strategies to achieve a high rate of return. What makes hedge fund appealing to people is they have high risk tolerance and a low regulatory burden.
Hedge funds are setup in a unique way, the structure is really simple, you have a general partner who’s responsible for finding and managing an investemnt portfolio by choosing an aggressive investment strategy. Than you have partners there only responsibility is to provided large sums of money to the general partner so that it can be invested.
There is a four stages process on how hegde funds invest
Stage 1: Investors(parters) contribute capital(money) to the investment partnership (general partner).
Stage 2: Pooled funds are invested in a diversified portfolio (managed by the general partner)
Stage 3: Portfolio investments generate income and gains/losses(money)
Stage 4: Profits net expenses are allocated back to partners(you get money back)
Now this sounds like a very good system you give you money to a really smart person and he invest that money. Because of this unique structure there are not many regulation on how the General Partner invests that money. these limited restrictions allow for more aggressive investment strategies witch leads to more money.
But not anyone can be part of this exclusive club only a unique individuals are allowed to invest in Hedge Funds. here are the requieremnts for becoming a limited partner in a hedge fund.
Limited Partener: Accredited investors
1) you must have over $1,000,000 worth of cash, not net assets but cold hard cash.
2) Ove the past two years you have to earn over $200,000 each year
3) You must have already $5,000,000 already invested in the market.
There are also many rules about how the hedge funds partnerships are put together
1) there can be no more the 35 un accreded unvestors
2) no more the 500 investors
These are the people who are part of hedge funds. This is an extremely exclusive club. No wonder the american people have no clue what hedge funds are or how to be apart of them. My question to the readers is should we allow these types of unregulated investments. Some people say it was these type of investments that were responsible for the bad economy. So I ask the question again should we regulate this industry more?
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