Hedge Funds - where does the money come from?

[andyfuller]

This may be a daft question but where does all the money that the various hedge funds you hear about come from?

Is it money from Pension funds?

Also when you hear they manage say £1 Billion does that mean that if they liquidated all their assests they would have £1 Billion in cash or is the £1 Billion arrived at because of the fact they can say leverage up £100 Million to £1 Billion?

[Euler]

I have a couple of good friends that a hedge fund managers and when they say X million / billion it means the funds they have under management. Not the risk they have under management.

Funding can come from pretty much anywhere, private individuals, other funds, banks, pensions, endowment funds. Most people go out and actively pitch an idea to raise funds and offer a cut in return. Some funds can leverage up to improve returns, i.e. borrow money or take on derivative obligations, but that obviously increases the risk of something going wrong. Some funds can have spectacular returns, but often take horrendous risk to achieve this.

[superfrank]

have a look at the investors in Bernie Madoff
http://s.wsj.net/public/resources/docum ... 81215.html

all sorts in there including a former Miss America!

[andyfuller]

Cheers for that Peter.

SuperFrank - I asked about Hedge Funds not Ponzi schemes

That link is fascinating in many ways! Firstly the diversity of people involved, then the size of investments from very small to huge. Why would he bother with $50,000 hardly seems worth the extra admin given the size of some of the investors.

Also what on earth were some of these people/organisations doing putting almost all their wealth in some cases in to the one basket - madness!

Also the amount of money some of the charities have is amazing!

Also when you see some of the mega people invested who despite having hundreds of millions involved represents a tiny amount of their fund, where do these people get hundreds of billions from? Crazy!

[jimrobo]

the amount of money around in financials is vast!

My friend who trades for hsbc told me last weekend he is able (and regularly does so) to put through on his own with no sort of authorisation at all orders in the billions to pressurise prices in certain markets.

[superfrank]

I guess they thought that there was diversity within the fund which hedged their exposure.

the returns were incredibly consistent (and very healthy) in all market conditions (which should have rung alarm bells - too good to be true). investors are driven by fear and greed like most others.

[andyfuller]

I just struggle to comprehend so much money but I guess ti all just becomes numbers eventually like with Betfair but just on a much bigger scale Jimrobo.

Yeah agree SF - fear and greed, dazzled by the returns I guess that were on offer but it was still the same person pulling the trigger it was just at different targets. Much better to be involved in several funds rather than just the one so you have different people pulling the triggers.

[jimrobo]

its incredible isn;t it! But it just shows how small fry we really are!

He said its not unreasonable to make or lose 4 million in a day!

[andyfuller]

its incredible isn;t it! But it just shows how small fry we really are!

He said its not unreasonable to make or lose 4 million in a day!

Incredible indeed and fascinating! Shows what opportunities are out there outside of our Betfair bubble. So who wants to invest in my hedge fund

[superfrank]

there are a massive number of incredibly wealthy individuals and families, most of whom we'll have never heard of.

i guess people always want more.

i've often found that the people with the most money and biggest salaries are often the tightest people. in my last job one of the managers objected to splitting a bill equally for a team lunch because he'd had one beer less than the rest of us (and he was on £200k+)!

[jimrobo]

my friends the same we all went out and on his round he bought 2 bottles of champagne. Then he came over to me and said this was a bit more expensive than everyone elses round so we'll split it. Can you give me 50 pounds. I was like sure whatever but for someone who is rumored to be earning a million I thought that was a bit tight!

[andyfuller]

i've often found that the people with the most money and biggest salaries are often the tightest people.

When I was Assistant Broodmare Manager for Darley in Australia we were made to reuse a plastic syringe until it wore out when giving oral meds to the mares rather than use a new one each time or for different mares. The syringe probably costs a few pence and how much is Sheikh Mo worth?!

When you spend time working in Darley and see how money is spent it drove me mad - just ridiculous and in ways you struggle to imagine, no wonder it took so long for it to be found out one of the accountants was syphoning off heaps into their private bank account!

[Groovyelms]

A past client from my former job, started life as an oil futures trader. he was earning 2,000,000 a year working for someone else.

he then formed his own trading company, and sold out before banking crisis. Now he has hedge fund and his earnings can only be guessed at...
There are a suprizing number of incredibly wealthy folk around..
I think Bernard Madoff needed every penny he could get his hands on.

Info about hedge funds:-

http://www.youtube.com/watch?v=ksLySMWR ... detailpage

groovy

[Iron]

The average hedge fund is down 3.3% this year, although a trend following hedge fund (run by possibly the best paid hedge fund manager in the UK) is up 5% - see http://www.ft.com/cms/s/0/20496e0a-18fa ... z1fKIKwRls

When there's little that's worth investing in based on fundamentals, trend following becomes a particularly attractive proposition...

Jeff

[andyfuller]

"The rich bail out of changing hedge fund industry"

"Rich private investors are turning their backs on hedge funds because moves to attract more conservative pension fund clients mean managers no longer deliver the big returns they crave."

http://uk.reuters.com/article/2012/10/2 ... NN20121022