What are the fees of a Hedge Fund? How do they charge?
So, you want to join this elite class, do you want to know how they charge? what are the fees a hedge fund incur?
Mr Alfred Winslow Jones (Big Daddy and the God Father of Hedge Fund) idea was simple, in 3 steps:
Step 1: Pooled together a pool of qualified investors
Step 2: Charge a 2% management fee of the total investments for "managing the money"
Step 3: Get a bonus of 20% performance fee at the end of the year, for the returns that he generated from the investments.
Sounds good? Make sense? Yes, from the Big Daddy's perspective, in fact it is a win-win for all parties. While he implement his strategy, he has a good 34 years with only 3 years of losing 10%.
How does it works?
Take a look at the diagram above, Step 1 is where the investor gets together, gets qualified and pool their investment together. the diagram shows $100 for easier calculation.
For a qualified investors for a hedge fund, the investor must be an accredited investor or an institution investor. Want to know what's the definition of an accredited investor?
Check it out here:
Step 2 is where the hedge fund collects the management fee, for this discussion, 2%/per year. The diagram shows a straight off deduction of 2% from the initial investment, which brings the investment amount to $98. This is accounted at the beginning of any investment. Some hedge fund charges on a monthly basis (2%/12months), others charge quarterly (2%/4months), half yearly (2%/2) and some end of the year. It depends on what is the strategy of the fund manager, one thing to note, the management fee is dependable on the total asset under management, meaning, if your investment grows from $100 to $200 in next month and you are on a monthly basis, it will be 2%/12months multiply by $200.
Step 3 is where the win-win or the lose-lose situation sits. I personally called this the report card. It demonstrate if the hedge fund strategy works and whether your investment is making money. If it makes money, the hedge fund will take a 20% off the performance fees as his bonus. That's how simple it is. For large hedge fund managers, they can collect up to millions as their bonus, but well, it is only 20% of what they have made for their investors.
Source: Wolf of wall street
Are you looking into how are your investment begin charge? Are you charge correctly? Or are you heading into a scam? Did you do your due diligence before investing?
Hedge fund might be a better investment choice for you, if you are into the safe hands, afterall, you are elite class.
I will talk about 5 risks that you should be looking out for when
you invest in a hedge fund.? in my next article.
Entail Holdings is a hedge fund platform, if this article adds value to you and you would like to find out more about Entail Holdings Hedge fund, what we invest in and how you would like us to help you on your investment, drop me an email at email@example.com
𝘋𝘪𝘴𝘤𝘭𝘢𝘪𝘮𝘦𝘳: 𝘛𝘩𝘪𝘴 𝘮𝘢𝘵𝘦𝘳𝘪𝘢𝘭 𝘴𝘩𝘢𝘭𝘭 𝘯𝘰𝘵 𝘣𝘦 𝘤𝘰𝘯𝘴𝘵𝘳𝘶𝘤𝘵𝘦𝘥 𝘢𝘴 𝘢𝘯 𝘰𝘧𝘧𝘦𝘳, 𝘳𝘦𝘤𝘰𝘮𝘮𝘦𝘯𝘥𝘢𝘵𝘪𝘰𝘯 𝘰𝘳 𝘴𝘰𝘭𝘪𝘤𝘪𝘵𝘢𝘵𝘪𝘰𝘯 𝘵𝘰 𝘤𝘰𝘯𝘤𝘭𝘶𝘥𝘦 𝘢 𝘵𝘳𝘢𝘯𝘴𝘢𝘤𝘵𝘪𝘰𝘯. 𝘛𝘩𝘪𝘴 𝘪𝘴 𝘱𝘶𝘳𝘦𝘭𝘺 𝘴𝘩𝘢𝘳𝘪𝘯𝘨 𝘰𝘧 𝘧𝘳𝘦𝘦 𝘪𝘯𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯 𝘵𝘩𝘢𝘵 𝘪𝘴 𝘢𝘷𝘢𝘪𝘭𝘢𝘣𝘭𝘦 𝘧𝘳𝘰𝘮 𝘵𝘩𝘦 𝘸𝘦𝘣𝘴𝘪𝘵𝘦 𝘢𝘯𝘥 𝘤𝘰𝘯𝘴𝘰𝘭𝘪𝘥𝘢𝘵𝘦 𝘧𝘰𝘳 𝘦𝘥𝘶𝘤𝘢𝘵𝘪𝘰𝘯 𝘢𝘯𝘥 𝘪𝘯𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯 𝘱𝘶𝘳𝘱𝘰𝘴𝘦𝘴.