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Hedge FundsHedge funds are private investment firms that trade a wide swath of financial assets (such as the stock and debt of publicly traded companies), aiming to make money when markets are both up and down.
Like mutual funds, hedge funds pool money from investors and invest that sum on their behalf, but the similarities mostly end there. Hedge funds—with portfolios ranging from millions to tens of billions of dollars—buy and sell a wide range of assets, from bankrupt companies' debt to commodities like cattle. Mutual funds tend to buy and sell less complex assets, like stocks.
Hedge funds are now a multitrillion-dollar industry that impacts just about every corner of the economy. Yet, the SEC allows only “accredited investors,” such as family offices and university endowments, to invest in hedge funds due to their risky and complex strategies.
Minimum investments range from $100K to several million dollars. In 2024, global hedge fund assets hit a record $4.5T.Explore Hedge Funds
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Many hedge funds use short selling as an alternative investment strategy to offset riskHedge funds typically use a "long-short" investment strategy—where funds diversify by investing in a mix of long positions and short positions—to balance risk and maximize profits. Including short positions gives hedge funds some protection against downturns in the market, although the strategy can have uncapped losses for investors. YouTubeExplore the differences between private equity, venture capital, and hedge fundsPrivate equity firms focus on buying and improving private companies with the intent to sell them for profit or take them public. Venture capital is technically a form of private equity in which investors focus on startups and generally don't seek majority control of the company. Hedge funds are pooled investments for sophisticated investors that pursue a wide range of often complex strategies. HarvardThe 'Two and Twenty' structure allows hedge funds and private equity firms to earn significant returnsWith this structure, firms charge limited partners or "LPs" a 2% management fee for overseeing the fund (assets under management or AUM) and take 20% of the fund's overall profits (carried interest). Many private credit funds also operate under this structure. Corporate Finance InstituteFamily offices are estimated to manage more assets globally than hedge fundsAs baby boomers prepare to transfer more than $84T in assets to the next generation over the next 20 years, family offices’ impact is expanding. TEDx TalksHedge funds make money from imposing steep fees on investors, as well as from investment performanceHedge funds often operate on a "2 and 20" model: Investors pay fund managers a 2% management fee, and the hedge fund keeps 20% of their profits. (The 2% is imposed annually, irrespective of performance.) Hedge funds are known for chasing big returns—and taking big risks to get them. This explainer not only breaks down how they work in detail, but also the strategy first introduced in 1949 that still shapes hedge fund investing today.
1440 DailyHow ‘vulture’ hedge funds make moneySome hedge funds specialize in snapping up distressed assets, like failing newspaper chains, and further stripping down their operational expenses in a bid to make a profit from the initial capital outlay. Delve into how one secretive firm known for the practice operates—and what’s at stake for the broader economy. Vanity FairSome multibillion-dollar pension funds depend on hedge fundsPensions are responsible for safeguarding the retirement plans of many corporate and government employees alike. Pensions differ from 401(k) plans and sometimes rely on alternative assets, like hedge funds, to insulate their portfolios of billions of dollars from volatility in financial markets. Read the case top pension advisor Cambridge Associates makes for hedge funds. Cambridge AssociatesThe world’s top 10 hedge fundsThe world’s top 10 hedge funds based on total assets under management include Ray Dalio’s Bridgewater Associates and Citadel. InvestopediaShorting is a high-risk and expensive investment strategy that hedge funds specialize inMost investors buy stocks with the expectation that those stocks will be worth more tomorrow than they are today. Short selling, known as “shorting,” a stock is the opposite: The investor is betting the stock will drop in value. BankrateA hedge funds timeline, from the 1940s onwardSince Alfred Winslow Jones formed the first hedge fund in 1949, traders have rolled out an increasingly complex array of investment strategies. They all aim to beat increasingly efficient markets and/or to provide ample downside protection against sell-offs. Preqin AcademyThe shadow banking system is a group of intermediaries that operate outside of normal banking regulationsThe nonbank financial intermediaries that make up the shadow banking system legally provide services that are similar to those of traditional commercial banks. Although the term isn't used as often as it once was, private credit firms are technically part of the shadow banking system, as are hedge funds, payday lenders, buy now, pay later companies, and more. Encyclopedia BritannicaHow one supplement company cost a short seller $1BPershing Square, a hedge fund founded and run by Bill Ackman, put short positions on Herbalife in 2012, because it believed the company was a pyramid scheme. Ackman's longtime rival and legendary investor Carl Icahn began buying Herbalife shares, causing the stock price to rise—ultimately hurting Pershing Square's short position. InvestopediaHow a Reddit thread drove GameStop's stock price up and gutted the pockets of short sellersIn 2021, many hedge funds felt like GameStop was overvalued and began placing short positions. However, users in the "r/WallStreetBets" subreddit felt like the hedge funds were too aggressive in their short positions and rallied together to purchase large amounts of GameStop stock, pushing the stock price up. As the stock price rose, hedge funds began buying back their shares to cover their short positions, which also began pushing the stock price up in what's called a "short squeeze." CNETPorsche briefly made Volkswagen the most valuable company in the world in 2008In the wake of the 2008 global financial crisis, hedge funds began placing short positions on German automaker Volkswagen. Around the same time, Porsche began acquiring a majority stake in Volkswagen, which decreased the amount of available shares, or the "stock float." Porsche then announced that it owned more than 74% of the company, prompting short sellers to realize they had placed more short positions than were logistically possible given that less than 6% of the company's shares were available to trade. In what is largely recognized as the biggest short squeeze in history, Porsche made $10B, and hedge funds lost more than $30B. YouTubeHear why one short seller thinks short selling is now more important than everCarson Block runs an investment research firm and hedge fund, Muddy Waters Research and Muddy Waters Capital. Block is known for being an activist investor focused on identifying fundamental business problems that might cause a stock to be overvalued. Block says a decrease in investigative financial journalism, deregulation, and less oversight of businesses overall have increased the scope and scale of fraud, making short sellers that suss out overvalued stocks incredibly important. SpotifyThere is no discrete edge to an atom from which to measure its sizeThe quantum model of the atom describes it as almost entirely empty space, with a dense nucleus at its center surrounded by electrons in probability clouds where they are most likely to be located. The fundamental uncertainty of these clouds has spawned various methods and resulting measurements for the atomic radius. Chemistry WorldWarren Buffett retired at the age of 95Buffett said that he would pull back from his day-to-day role leading Berkshire Hathaway at the end of 2025. This long-form retrospective on his career paints him as an increasingly unique American role model. The Atlantic90 percent of active managers of large public funds underperformHigh fees tend to eat away at whatever edge professional managers accrue, resulting in most such funds performing worse than their underlying benchmark indexes like the S&P 500. Ancap FinancialMicrosoft was the most popular stock in hedge fund portfolios as of Q1 2024874 hedge funds held Microsoft stock at the time. This infographic shows more of the most popular stocks in hedge fund portfolios. Visual CapitalistAngel investors typically fund a startup at an earlier stage than venture capitalistsAngel investors and venture capitalists both invest in startups, but they differ in a few key ways. Angel investors typically invest earlier and in a smaller amount. Encyclopedia BritannicaMore than half of family offices have succession plans in placeThe UBS annual report on family offices found that its clients are preparing for trade wars, generative AI, and generational wealth transfers. WealthbriefingExplore an alternative investments timelineFrom what’s known as the first leveraged buyout, when JPMorgan acquired the Carnegie Steel Company, to the creation of the first-ever hedge fund, alternative investments have a long history. PreqinAlternative investments can be sorted into seven major categories, according to some expertsThese categories include real estate, private equity, private debt, hedge funds, collectibles, and more. Business Insights BlogA reclusive billionaire ran Sears before its bankruptcyFormer Sears CEO and hedge fund manager Eddie Lampert was once kidnapped from his home in Greenwich, Connecticut by criminals looking to get rich. Some argue that the incident colored Sears’ history. Business InsiderMultiple business choices may have hindered Sears’ financial successThere’s no shortage of potential culprits for Sears’ death, from hedge fund manager Eddie Lampert, to Amazon, to the 2008 stock market crash. Investopedia Citadel founder Ken Griffin has a $1.5B property portfolioTake a look inside Griffin's real estate portfolio, from a $1B home in Palm Beach to his New York City penthouse on Billionaire's Row. Robb ReportJim Simons, a government code-breaker turned mathematician turned trader, revolutionized quantitative investing The late Jim Simons is remembered as one of the most successful (and profitable) hedge fund managers of all time. He went from physically gathering microfilm on commodities pricing decades ago to overseeing a firm that led Wall Street in daily trading volume. YouTubeRetail investors are getting burned by long/short strategiesIn the US, many retail investors lack the SEC-mandated status (a high enough net worth, income, and other factors) to directly invest in hedge funds. The regulator considers hedge funds too risky for the masses. Hedge fund-like strategies have emerged as a workaround, despite potential pitfalls. The Hedge Fund JournalA landmark hedge fund court case once reshaped high financeHedge fund traders tied to insider trading by probing prosecutors are relatively rare. When billionaire hedge fund legend Steve Cohen, founder of SAC Capital, pleaded guilty to trading on inside information, Wall Street trembled. The outcome of the case remains a cautionary tale for traders today. Frontline PBS What happens when a hedge fund grows too big, too fast?Dmitry Balyasny, who heads what has become one of the top US hedge fund firms, got a crash course in finance as a teenager, when he started trading stocks—and started losing money. Balyasny went on to lose a whole lot more money. But, this time, it wasn’t his to lose. To find out more about his firm’s remarkable comeback, read this article. Institutional InvestorOne $100 investment in the Medallion Fund skyrockets over timeThe Medallion Fund, the famously secretive quant fund that invests billions of dollars for the partners and employees of a single firm with a legendary track record, has trounced the market for more than three decades. While its results are an extreme outlier, this visualization showcases the power of compound interest. Visual CapitalistHow to put on a hedge These days, hedging your portfolio isn’t just for hedge fund managers. An explainer from Robinhood delves into what a hedged position actually is, why traders put on hedges, and how you, too, can work to guard your holdings against a market downturn. The idea is to derive gains from your portfolio when markets are trending up, down, or sideways. RobinhoodLess than a third of wealth transfers to the second generationJust 12% of family wealth reaches the third generation, and 3% makes it to the fourth. Family offices work to prevent that kind of attrition and ensure family fortunes are passed to the next generation. SimpleThe ‘commodities’ investment category includes livestock, oil, wheat, and moreCommodities traders look at all of these things as assets, placing short-, medium-, and long-term wagers on how much each is really worth. Business InsiderHow Ivy Leagues are worth billionsIvy League universities manage massive endowments to support their operations—but instead of simply spending donations, they invest them for long-term growth. Yale’s David Swensen helped reshape this approach in the 1980s by diversifying beyond stocks and bonds into private equity, hedge funds, and real estate. 1440
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