Monday, February 13, 2017

hedge fund

  • it is often a waste of ur money when ur long-term investing funds pay for hedging
  • hedge funds can sell short; can buy on margin, can charge whatever they want; charge for eg. 1 % of the assets as an annual management fee, and as an incentive fee, 20% (eg) of any profits that accrued; hedage funds can sell short, tus, they would always make money, this is where the incentive fee came in
  • mutual fund in USA just buy shares; mutual funds are restricted by SEC to charging low fees, are not allowed to borrow money, that is, can't buy on margin; mutual funds are not allowed to charge incentive fees
  • according to laws, if u have fewer than 99 investors, u are not considered to be raising money from the public, and private parties could make any kind of compensation arrangement they wanted; hedge funds, therefore, are structured to be small

currency hedge fund
  • currencies are a zero sum game--one goes up and another goes down
  • if u are investing for decades rather than for months and years, and if ur funds paid for currency hedges throughout the decades, the additional cost of those hedges will hammer ur returns
  • many fund managers like to hedge in order to decrease short term volatility due to currency movements
  • since u are investing for such a long period of time, u don't want too many funds that absorb the costs of all those short-term hedges
  • ur need to make sure the currency risk in ur overall funds portfolio is spread across a variety of currencies, including a large exposure to ur own home currency, or the currency of the location where u will likely retire  

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