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What is hedge fund?Hedge Fund

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Hedge Fund, English is HedgeFund, means “The fund of hedging risk“, Also known as” Hedging fund“, or” Arbitrage fund“The typical characteristics of hedge funds are::

  • Trading orientation is not investment orientation;
  • Passionate to add leverage, pursue high profits, but at the same time accompanied by high risk;
  • The goal is arbitrage, which will adopt two strategies: more and short.

At present, the global hedge fund managers are about 3.3 trillion US dollars assets, and the main investors are financial institutions and high net worth groups.

Hedge funds are not available for ordinary retail investors.It has high entry conditions and high investment risks.

Hedge funds have a long history, but their significance has changed in different times.Although there are not many people who can participate in hedge fund investment, hedge funds are involved in almost all financial investment areas.

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How did hedge funds develop?

Hedge funds originated in the United States in the early 1950s.The main purpose of its operation was to use financial derivatives such as futures and options, as well as operating skills such as short-to-related stocks to buy and sell them.investment risk.

Simply put, it means Loss of income offset Fund.

In the 1980s, with the rapid development of financial liberalization, financial instruments became increasingly mature and diversified, and the role of hedge funds changed greatly:

  • Hedge funds gradually become “To earn greater profits” for purpose;
  • The timing of hedge fund operation also carried out after other investment operations, and through its own profits to hedge the risk of investing in losses.At present, it is independent and proactive to make profits by relying on hedge funds itself.

It can be said that the current “hedge fund” is no longer the “hedge fund” in the past, but it only uses the past names, and the investment purpose and method have changed a lot.

Now the financial industry’s understanding of the “hedge fund” is that fund managers make full use of various financial derivatives such as futures, options, interest rates, and foreign exchange swaps for speculative investment to pursue a high-risk and high-yield investment fund.It usually takes greater risks than the overall market.

What are the characteristics of hedge funds?

The current hedge fund has the following characteristics:

1.Fund type

Hedge fund is a private fund, which is independently operated by the fund manager to determine the financial products invested.

2.Supervision intensity

Hedge fund is different from Mutual Fund(Mutual Funds) is strictly supervised.Hedge funds usually have more rooms to chase investment and strategies that may increase investment income or risk.

3.Participate

Hedge funds only allow funds from the so-called “qualified investors”, such as individuals with an annual income of more than $ 200,000 or net assets over $ 1 million in the past two years, excluding their main residential assets.

4.Investment object

Hedge funds can invest in almost all financial products, including land, real estate, stocks, various financial derivatives, and currencies, and they can be used for more or short.The common funds usually do only as many.

5.Investment method

The investment of hedge funds is almost all of them Leverage investment It usually uses borrowed funds to enlarge the return on investment and be allowed to make radical short investment.This method may earn high returns, but at the same time, it may also cause heavy losses to go bankrupt.

6.Investment fee

High risks of hedge funds have great market judgment capabilities for fund managers.

As a result, the return of fund managers is much higher than the income of ordinary fund managers.Hedge funds usually use a cost structure of 2-20:

  • 2%: During the investment process, no matter whether the investment failed or successful, the hedge fund manager will charge a 2%asset management fee;
  • 20%: If the investment is successful, the cost of 20%will be extracted from the customer’s income;

How does hedge funds operate?

Take stock investment as an example.Let’s take a look at how the hedge funds operate in the early and late stages of hedging funds.

Early

In the initial hedging operation, after purchasing a stock, the fund manager purchased the certain price and timeliness of this stock at the same time.

When the market value of the stock rises, the rise of the rise will be hedamed the expenditure of buying options.Similarly, when the stock falls, investors can sell the stocks held in their hands at a limited option price, so that the risk of the stock price decline is obtained.Hedry.

It can be seen that the early hedge funds did play a role of “hedging”, and the conservative investment strategist was used to avoid danger and preserve it.

now

When people realize that hedge operation can still make money in the bear market, its essence began to change.

Hedge fund managers began to conduct high-risk investment through a variety of investment model combinations.

For example, from 1999 to 2002, ordinary public funds lost an average of 11.7%per year, while hedge funds made 11.2%per year during the same period.

For another example, during the 2008 subprime mortgage crisis, the Pure Alpha Fund of the bridge hedge fund has achieved 9.5% of its profit.

Sometimes, the hedge foundation will make the original fragile stock or the financial market more vulnerable through “shorting” operation.For example, in 1991, “Financial Crocoders” Soros sniped the pound through quantum funds (short), allowing the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to allow the pound to let the pound and let the pound of the quantum fund to allowThe British economy was severely damaged and the pound was forced to withdraw from the European exchange rate system.Soros, through hedging funds, made a profit of $ 1 billion.

For the investment method of hedge funds, the most familiar thing is: Short As well as Do more Essence

What is going on with hedge funds short?

As short, English is Short.This is the biggest difference between hedge funds different from other funds.This also makes hedge funds profitable in the bear market, or destroy a stock in a more radical way and earn profits.

For example, in February 2021, the GameStop incident was originally due to two hedge funds, Melvin Capital and Light Street Capital, and were short-time for the Gamestop stocks, and were jointly bought by Reddit WallStreetbet.

The way to do short operation is as follows:

  • If the hedge fund believes that a stock will fall, it will be traded first through futures transactions Borrow Stocks and promise to return to some time in the future.
  • After borrowing stocks, the hedge fund will sell it in large quantities, which will lead to the rapid decline in the stock price; due to the huge number of stocks sold, it will often cause chain market reactions.The stock price further declined.
  • When the stock price fell to a certain degree, hedge funds purchased the stock at a low price and returned it to the institution.
  • Therefore, in the process of shorting, if the stock price falls, hedge funds can earn the difference in the stock decline.

The risk of shorting is that when the hedge fund sells a large number of stocks, a large number of investors in the market quickly take over, and the stock price will not rise.

At this time, hedge funds had to buy stocks at a high price and return the stock to the institution, and they lost the difference in the stock price rising process.

WallStreetbet War Melvin Capital event is a typical case of short-term failure, and it is still a group of blood retail investors that crack down on hedge funds, which can be called historical operations.

What’s wrong with hedging funds?

Compared to short, multi-investment is a relatively normal investment strategy, that is, buying and selling low.

When the hedge fund believes that a stock will rise sharply in the future, so buy a large number of at a low price and raise the stock price, the rise of the stock price will attract more funds injection, and the stock price will continue to rise.

When the expected price of the hedge fund reaches the stock price, the hedge fund will sell a large number of stocks in the hand and earn a high price difference.

The risk of doing more is that the stock price has not risen or even a decline.For a large number of hedge funds holding a large number of shares, the loss will be much worse than that of ordinary shareholders.

How do hedge funds make money?How does hedge fund profit?

As an investment, the hedge fund has invested in many financial products to obtain high profits from the difference.

For the fund manager of hedge fund, its profit is also considerable.At present, the 2-20 charging method is adopted.

  • 2 It means 2%: This is the fixed fee of asset management.Regardless of the investment results, investors must pay 2%of the cost of management assets;
  • 20 represents 20%of the revenue commission: when the investor obtains the income, the fund manager can obtain a high proportion of a high proportion of 20%from the income as a commission;

Although this ratio seems to be too high in general investors, for investors with high capital, the profits they may obtain are considerable.

What are the U.S.hedge funds?

At present, the well-known American hedge funds include: Bridgewater Associates, Renaissance Technologies, etc.::

1.Bridgewater Associates (Bridge Water Fund)

Bridgewater Associates is the legendary “bridge water fund”.As far as assets are concerned, Bridgewater Associates, which is located in Connecticut, is still the largest fund in the world.Founded in 1975 by Ray Dalio & Nbsp;

As of February 2020, its assets managed assets of US $ 160 billion.Some customers of Bridgewater include institutional investors, charities, university donation funds, and pension funds.

according to Forbes It is reported that in 2019 alone, Ray Dalio received a $ 2 billion ($ 2 Billion) US dollar salary.

2.Renaissance Technology (Renaissance Technology)

James Simons, co-founder of Renaissance Technologies, also received $ 1.5 billion in revenue in 2019.

Renaissance is one of the oldest and most popular hedge fund companies.The investment strategy used has achieved high returns, and the scale of asset management is about $ 68 billion.It provides services for companies, trusts, individual investors, and financial institutions.

Renaissance is currently operated by Peter Brown, and James Simons is still a member of the board of directors.

3.Quantum Group of Funds

Quantum Group of Funds is the largest hedge fund managed by the “Financial Crocodile” Soros Fund and one of the larger hedge funds in the world.It was founded by Soros and Jim Rogers in 1970.

The fund has repeatedly made a profit through financial instruments to attack the currency of multiple countries.The most famous includes attacking the pound in 1992, which is called “Black Wednesday”.

In the Asian financial turmoil in 1997, Soros used short ways to attack the currency of Thailand, Malaysia and other countries, and then prepared to start attacking Hong Kong dollars.However, Soros abandoned sniper due to the strict guardian of the Hong Kong government at that time and the injecting of strong funds in mainland China at that time.However, this also caused heavy economic losses in Hong Kong.At that time, the Hong Kong Hang Seng Index plummeted by more than 3,000 points within a trading day.

4.Millennium Management (Millennium Management)

The Millennium Management Hedie Fund was established in New York in 1989 by Israel Englander.The initial funds were US $ 35 million.Currently, it has about $ 48.3 billion in assets.The business involves the United States, Europe, and Asia.

Israel Englander also received a revenue of $ 750 million in 2019.

5.Elliot Management

Elliott Management is one of the world’s largest radical funds.The headquarters is founded in New York and was founded in 1977 by Paul Singer.The company not only invests in hedge funds, but also provides private equity and other businesses.At present, total assets are about $ 42 billion.

6.BLACKROCK (Black Stone)

Larry Fink, Robert S.Kapito et al.In 1988, it was jointly established in New York.It was originally managed as an asset management company of risk management and fixed income institutions, and currently managed about $ 8.67 trillion in assets.

7.Two Sigma Investments

Established in New York in 2001, jointly founded by John Overdeck, David Siegel and Mark Pickard.Siegel has a PhD in computer science.Overdeck is the winner of the International Mathematical Olympic Silver Medal.The Two Sigma established by them includes artificial intelligence, machine learning and other modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern modern Mathematical Olympics.High-tech technology.At present, the management assets are about $ 58 billion.

8.Citadel LLC

Citadel LLC was established in New York in 1990 by KenNeth Griffin.It is the world’s largest alternative asset management company with an asset of about $ 35 billion.In February 2021, after Melvin Capital was short, the gamestop failed, and after losing 53%of the assets, Catadel and Point72 Asset Management injected $ 2.75 Billion together.

9.D.E.Shaw & Co.

Founded by David E.Shaw in New York in 1988, it is known for developing complex mathematical models and complex computer programs to make profits from market abnormalities.At present, it has management assets of about 50 billion U.S.dollars.

10.AQR Capital Management

Founded by CLIFF Asness, David Kabiller and John Liew in 1998, they were jointly founded in Greenwich, Connecticut.They adopted the “system and consistent method” to determine the investment portfolio strategy and adhere to the diversification of the asset investment portfolio.At present, assets are managed about $ 143 billion.

11.Davidson Kempner Capital Management

Established by Marvin H.Davidson in 1983, it was originally called MH Davidson & Co., Thomas L.Kempner, Jr.& NBSP;

In 1984, the company was renamed Davidson Kempner Capital Management and was managed by Anthony A.Yoseloff.At present, the management assets are about $ 34 billion.

Is hedge fund risks at a high risk?

The current hedge fund is no longer a hedge fund founded for hedging investment risks.

The multi-field and more aggressive investment models once made the market being short-short by the hedge fund.

But in fact, at the same time as hedge funds, hedge funds are also facing high risks of the same level.

The main investment risk is as follows:

1.Less regulatory strength

Compared with other funds, they have less supervised by the Federal Securities and Trading Council (SEC).

Legalically, hedge funds are usually set up as private investment limited partnerships.Therefore, investment operations controlled by the fund manager alone cannot obtain sufficient supervision and protection.

2.More concentrated profit and loss

Hedge funds are mainly controlled by hedge fund managers.Once the investment strategy fails, it will cause a large number of concentrated losses.This process cannot be regulated and protected like ordinary funds.

For example, Melvin Capital is short on GameStop, causing 53%of the loss of assets, but it is said that the loss is heavy.

3.Low liquidity

Investment in hedge funds lacks effective liquidity, because hedge funds usually require investors to retain funds for at least one year, and this time is called the lock-up period.Subsequently, some fund managers may require locking funds for a longer time.

The withdrawal of investment funds may only occur in a certain time interval, such as once or once every two years.This means that once investment risks are expected, investors cannot withdraw their funds in time and change their investment strategy by themselves.

4.higher risk ratio

Hedge funds usually use leveraged investment models, which makes investment risks expanded the same proportion.

Does hedge foundation harm the economy?

High risks of hedge fund itself may lead to mutations in a certain industry.In a large economic environment, mutations in a link often cause some columns of chain effects.

Not as much as we mentioned before, Soros short-term pounds, which eventually created a serious hit to the British economy; and Melvin Capital short gamestop almost allowed GameStop to completely withdraw from the historical stage.

What is going on with WallStreetbet VS hedge fund?

In February 2021, the WallStreet Bet VS hedge fund incident was a sensation.It can be said that it was a game of a game of a strong retail investor against the Wall Street Hedge Fund.

The cause of the incident is the shares of the hedge fund to see the stock that declined.GameStop is an old game physical store, a beautiful memory of many Americans and teenagers.

The original performance was hit by the virtual online game, which was severely damaged in 2020, which was raging in the epidemic, so it caused the Wall Street hedge fund to start short GameStop, trying to further put the valuation of GameSTop.

But at this time, some investors, for example, “Big Shots” legend Michael Burry did more gamestop.

Therefore, for a while, GameStop stocks are in the stage of making more and short-term competition, but the shortcomings account for a greater advantage.

Finally, the uncle’s mall of the Reddit Forum.The young man of that year, the uncle today, looked at the Gamestop, who was like his childhood playmate, was about to be completely defeated by hedging funds.

The slogan of declaration war was shouted at the Wallstreet Bet forum on Wall Street, and a large number of retail investors were assembled.The former “leek” became the “fighter”.

How much GAMESTOP stocks are sold for hedge funds, and retail investors buy how much they buy, and even constantly injected capital, and adopt the “All in” method.

As a result, at the opening year of the stock market’s sluggish 2021, GameStop’s stock price rose like mountain climbing, rising from almost vertical angle, and hedging funds such as Melvin Capital were caught off guard.

Although the final situation subsides, the loss of this hedge fund is heavy, such as Melvin Capital’s loss of 53%of the assets, which also makes people realize the high risk of hedge funds.

common problem

Question 1: What is hedging fund?

Hedge funds are “hedge risk funds”, also known as “insurance fund” or “arbitrage fund”.In the 1980s, with the rapid development of financial liberalization, financial instruments became increasingly mature and diversified, and the role of hedge funds changed greatly.Now the financial industry’s understanding of the “hedge fund” is that fund managers make full use of various financial derivatives such as futures and options for speculative investment.A kind of investment fund that pursues high-risk and high returns will usually bear larger than the overall market.risks of.

Question 2: Hedie Fund Ranking?

The current well-known hedge funds in the United States are:
1.Bridgewater Associates (Bridge Water Fund)
2.Renaissance Technology (Renaissance Technology)
3.Quantum Group of Funds
4.Millennium Management (Millennium Management)
5.Elliot Management
EssenceEssenceEssence

Question 3: What is the English of hedging funds?

Hedge fund, English is hedge fund.

Question 4: How do hedge funds make money?

As an investment, the hedge fund has invested in many financial products to obtain high profits from the difference.
For the fund manager of hedge fund, its profit is also considerable.At present, the 2-20 charging method is adopted.