Fund Managers Typical Profile
Fund managers usually have a minimum of 10 years of investment experience before managing a fund. In fact, many of the fund managers worked at the proprietary trading desks of major banks. Due to their former experiences, the majority of fund managers have established management records prior to joining the management team of a fund. One of the more prominent money managers of our time is Mr. George Soros, Chairman of Soros Fund Management.
Hedge Funds & Investment Banks
Hedge funds are most commonly formed as private investment corporation that are available to only a selected audience. The funds often have a substantially high minimum investment threshold, approximately US$5 million. A typical investment fund manages assets ranging between US$100 Million to US$20 Billion. Of course, there are bigger funds that manage well over US$50 billion. Hedge funds are essentially customers of major investment banks providing prime brokerage services.
Private Banks and Fund of Funds
Many Private banks such as UBS, Credit Suisse, Citibank, Deutsche Bank, and HSBC are offering selected investment funds for their high net-worth clients; essentially, providing alternative investment services outside of the traditional investment vehicles for their client base. It is also a risk management and diversification strategy.
Hedge Funds Management and Incentive Fees
Hedge funds often manage portfolios that consist of retirement funds, pension funds, high net- worth clients, insurance companies, endowment funds, and public funds. Even with the current economic conditions, hedge funds still manage approximately US$1 Trillion and they remain a preferred investment choice for many, in part due to their ability to make money long and short.
Generally, hedge fund managers charge an annual Asset under Management (AUM) fee of 1.5%. In addition to the AUM, when the fund is profitable, there is a performance bonus averaging 20% based on profits.
Hedge Funds & Opportunities
Needless to say, hedge funds employ the best and the brightest individuals of the financial and investment world. It is an exclusive circle. Every year, many of the hedge funds hire analysts and supporting staff, in an effort to develop their own team that fits into their corporate culture, offering opportunities for a rewarding career. However, hedge funds mostly hire people with a trading record and a credible recommendation from an established organization.
Hegde Funds and the Future
Even though the global economy is in recession and the downturn of the economy has had a ripple effect throughout the world, hedge funds remain a viable form of investment that will continue using several alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage. The stock markets will most likely continue to cool down, but foreign-currency trading and commodities trading such as oil, gold, and other natural resources will become a more prominent profit-making tool for many of the funds. Central bankers around the world are printing more money to support the economy. A portion of the newly printed money will ultimately be converted into savings and make its way back to the investment world. Ultimately, professional managers will manage the newly printed money, especially if the bank deposit rates remain low in the foreseeable future.