To counteract the effect of the markets rise and fall, Jones balanced his portfolio by buying assets whose price he thought would rise, and selling assets whose price he thought would decrease.
Now, a hedge fund is a sum of money that can used to buy or sell anything by investment or trading that is agreed to and funded by a wider range of investors.
Generally Hedge funds are used by institutions such as foundations, pension funds or private individuals who are used to investing large scale resources and have the financial worth to back it up.
These investments are taken care of by a Hedge Fund Manager.
The Hedge Fund Managers sole job responsibility is to make the invested money into profitable returns, through a wide range of investments and trading options for the members of the hedge fund.
So How do you become a hedge fund manager.
As an example suppose you set up an official company called MAKin MONEY corp.
You would get an operating agreement written that states the management of the investments and your fee for doing it.
lets say you decide you want 25% of any profit made over 5% of the original investment.
Next you need investors
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An investor puts 100 million into the hedge fund brokeridge account and you invest the money into anything that makes the company profit.
Risk adjustment comes into the equation but you invest the money and within a year the money doubles.
When the pay out time comes you get the first 5% of the profit removed and given to the investor.
This leaves 95 million of profit of which you are entitled to 25% or 23 million seven hundred and fifty thousand.
Not bad for a year. . . .
There is also often an agreement made in the agreement called the 2 - 20 rule.
This means that the hedge fund manager is owed 2% of assets and 20% of profits. This could mean that if the company lost money the manager is still owed 2% of assets.
Should you start your own hedge fund?
In theory anyone could become a hedge fund manager or hedge fund investor but you would have to have the capital to do it.
But hedge funds are notorious for bad publicity and hedge fund managers can often be seen in the media taking huge bonuses for investments that loose money.
Hedge funds are not sold to the public or retail investors, so you would have to be registered as a company and only certain types of investors that specified by regulators are allowed to join the hedge fund.
Regulations passed in the United States and Europe after the 2008 credit crunch were intended to improve governments overview of hedge funds and to stop regulatory gaps.
Hedge funds are complicated there are so many strategies that it can be hard for investors to fully understand the agreement without sound financial knowlledge or just blind faith.
Hedge fund reporting is minimal and can be done to mislead investors or misrepresent performance entirely.
Great care and outside advice on verification needs to be taken before investing.
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