Hedge Funds Explained: Why Hedge Funds Aren’t Really Hedged
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- Опубликовано: 24 май 2024
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So hedge fund is a term that has really lost a lot of meaning in recent years. These days it basically just means a managed financial institution that facilitates complex investment strategies that cater exclusively to high net worth individuals. But that wasn’t always the case. You see hedge funds actually have a really specific role in the world of high finance and in this video we are going to find out what makes them work.
📚 Want to learn more about hedge funds? We recommend reading "So You Want to Start a Hedge Fund: Lessons for Managers and Allocators", by Ted Seides
👉 amzn.to/3dRZbnS and "The Little Book of Hedge Funds" by Anthony Scaramucci
👉 amzn.to/2Yh132Q (note: as an Amazon Associate, we earn from qualifying purchases)
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#HedgeFunds #Stocks #StockMarket
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@economics explained is the type of guy to press Clear on the calculator 15 times
Economics Explained so the average return of the top-100 hedge funds was the same as the average market return. I’m curious to know: what is the average return of the top 20% of hedge funds by AUM? I think that would be a better representation of the industry, as the spread across 100 firms could be very wide and the signal could get diluted.
It will be well worth it. It is like you gave us the secrets of power or something.🤣
Video suggestion: Who created the federal reserve ?
@@maven8653 because the car exists while the wife does not.
Can you do the economics of why my wife left me
Steve from across the road had more productive potential. She was simply seeking the highest utility value for her investment of time....
@@EconomicsExplained oof
@@EconomicsExplained nooo lmaoooo
@@EconomicsExplained bring some water you guys.someone got burnt.
Economics Explained thank you
SUCCESS IS NOT FINAL;FAILURE IS NOT FATAL :IT IS THE COURAGE TO CONTINUE THAT COUNTS. BUSINESS OPPORTUNITIES ARE LIKE BUSES, THERE’S ALWAYS ANOTHER ONE COMING.
To manage investment risk, consider maintaining a broad diversification of your investments that reflects your personal risk tolerance, time horizon, and the nature of your financial goal.
Remember, diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline. Because investing can be complicated, consider working with a financial professional to help guide you on your wealth-building journey.
Who would you endorse ?.
@@mayacho4910'MARTHA ALONSO HARA".
@@greenquake11931 How do i reach her?.
The tab selections were simply perfect..
The online degenerate starterpack.
@@EconomicsExplained wsb and spin&go, name a better duo 😂
@@EconomicsExplained How was the 5 original tenders pack from KFC? How can one determine the intrinsic value of the 5 original tenders pack? Pls make a video on this.
Kthxbye
I dont wanna be a hedge fund in just wanted to make extra money for my family i know nothing about running or hedging a company i really don't think this is job for i just rather step down from the position
People who say they wanna start a hedge fund really just wanna do coke and drink at 10 in the morning
@@user-nf9xc7ww7m I think he meant the recreational drug (cocaine), not the soda.
리주민 he’s talking about blowing fat lines
I do that anyways
@@grahamturner2640 I think he was being sarcastic because of the wink emoji.
Nah, coke is for the IBankers, hedgies do meditation and moda/L$D are their drugs of choice
Video suggestion: gaddafi and his currency he was trying to make
Just googled this. Had no idea. Great topic.
Yep I would be interested in that.
Please 🙏🏼
Would definitely watch it
Ooo, I would love a video about that!
hedge funds should be put towards rebuilding hedges.
They certainly are a neglected piece of foliage these days
Based
the profile pic matches this perfectly
Fun fact: some hedges in Britain have been around since Anglo-Saxon times (approx 600-1066AD) but a lot of them were got rid of in the 50s for higher yield agriculture. I 100% support hedge funds for actual hedges!
Fun Fact: Warren Buffet once made a million dollar bet that 5 of the top rated hedge funds in the US would fail to beat the market over a 10 year term. By the time the bet was over the hedge funds had earned 36% to the market's 126% returns, and lost more EVERY YEAR except one. Despite this, the fund managers took home hundreds of millions in fees and salaries for the 'good job'
Makes you think...
Hedge fund managers and their clients do not care too much about beating market rates of return. The reason why billionaires dump lump sums into hedge funds is because their potential losses are capped at 10%. If they had all their money in the markets, coronavirus would have wiped out half their portfolio.
@@wngmartin
and 100% of the debt would remain. leaving most billionaires with negative equity and infact bankrupt.
Martin G exactly, at fund I work for, we maximize our risk ratios (sharpe, treynor, etc) to gauge investor preference for risk. The measurement Buffett displayed was simply arithmetic returns, not geometric. Our clients prefer not being exposed to certain markets and are far more satisfied knowing that we have never delivered a negative year. Our ability take on exposures across any asset class or derivative enables us to act extraordinarily fast to generally offset any losses with negatively correlated positions. Investing in hedge funds requires high due diligence because some certainly fail to deliver this objective, but many still do, and those are far more valuable than any index fund.
As Cliff Asness has said, they don't compete with the S&P since the market ignores position sizing. Hedge funds are not taking 5 million to invest, they manage billions of dollars, try investing that in the market without hickjacking the price of a stock. 6% on a 30 billion fund is not that bad if you think about it.
Martin G can u plz explain why 10% loss is the cap? Isn’t it possible the fund fails to return anything
What I was expecting --> "Hedge Funds are a vehicle of investment"
What I got --> "Nah...Hedge Funds are really just a way to rich avoid taxes"
Lol, what you really got is the garbage of a "wannabe" Wallstreet expert.
There are easier way to avoid taxes
Based on this explanation of the "structure," it's hard to believe that this arrangement was ever about anything but avoiding taxes. Tax avoidance and hedging risk are really separate goals. You could buy options to hedge risks. The take home lesson is to have a tax haven to offload your profits onto.
Last time I was this early the market made sense
Bob Smith dead meme, not even used properly
@@clarkchavez7053 ok boomer
@@clarkchavez7053 i think the joke is that you have to at least 60 years old to remember when the markets made sense
This is you tube.. be more funny
You mean, in early february / late january?
My wife asks me every day this week if there is a new economics explained video yet, I am starting to get jealous of your sexy Australian accent. D:
Send me an email, I will read a poem to her from you in my accent lovely bogan accent.
Lol.
You need to optimize your portfolio man, to tipp the scale.
B1tch3s loves them m0n3ys
@@googleuser9383 sell boxspreads on Robinhood. It literally cannot go tits up.
@@UncleMerlin GUH
Y’all here after GameStop?
TO THE MOOOOOOOOOOOOOOOOOOOON !!!!
Yessir lol
Yup
Yep
To the 🌚
well this video has aged well after _The Big Squeeze_ of 2021
Aint happening yet, HOLD THE LINE!
It actually did very well, by stating that hedge funds aren't actually hedging. The hedge fund of old would not have shorted 140% of any company I don't think.
Yet to come*
@@justanoman6497 I'm sure some hedge funds actually use hedging strategies, though maybe not Melvin or Citron. Also, 140% wasn't the short position of a single fund.
welp that didnt age well.
What my friends and family think I do as a hedge fund manager: 0:40
What I actually do: 8:26
yeah sounds about right.
@@EconomicsExplained This is the first time in a while you've posted during Aussie evening hours, aren't you risking a deluge on the discord server?
As long as the emus don't come up in large numbers I guess things will be fine
Fancy seeing you here...
5:33 a man of culture
the stock footage you use man is absolutely amazing, makes me wanna binge your entire channel
Thanks Paul! EE uses Storyblocks for all of its visuals (videoblocks.go2cloud.org/SHI9). When you sign up with our link, you'll also be supporting our channel! ❤️ ... thanks for watching the show mate!
Hedge funds aren't supposed to be hedged, they're supposed to be _hedges_. They are investment vehicles with alpha that is uncorrelated to the market. The good ones have better alpha than the S&P (net fees). The hedge fund actually shouldn't hedge its own risk, that is the investor's job.
Not true!! If uncorrelated with the market, then you cannot measure them against S&P!!! And this is exactly their argument for them being them... :DDD
@@Harry-lq2jz he specifically said with alpha that's uncorrelated to the market
@@astrogaymerxd7290
Well done!
last time i was this early the Zimbabwe Dollar still had value
That's a lie.
how did you even type this so fast?
Video uploaded 6mins ago this comment is from 8minutes interesting u was pretty early
@@EconomicsExplained my good man, you have your talents and I have mine. Love your teams work BTW keep it up.
Economics Explained: "The average return of the largest 100 hedge fonds in america was almost exactly that of market returns"
Renaissance Technology: "Hold my mathbook"
submit to the algorithms
But what's their beta?
I'd say what's their sharpe ratio too, but that one is kind of bullshit.
@@razzlfraz why is sharpe "bullshit"?
Actually, hedge funds grow less due to the fee they charge you haha
@@razzlfraz Volatility isn't risk
Guide to becoming rich in 2020:
Tax evasion
Need to earn money first before you can avoid paying taxes on it.
@@EconomicsExplained Tax evasion = Drain on economy , but dont worry the working and middle class will cover the cost . MAN can we fix this bullshit soon PLEASE
Economics Explained for the concerns of the IRS, I earn nothing at all
@@10908070605040302 Why not freeing out working and middle class for those costs too?
Why do you think taxes are "good for societies"?
@@drjp4212 man we need some taxes, hospitals , police , it wouldnt feel so cuntish though if the upper classes stopped avoiding their share. The working and middle class would be relieved, from a LOT of the current taxes they are paying.
Economies are strong when working and middle class have spare cash , money flowing among those sections of society, not when 25 people own everything, and everyone else works for them. Its time the upper class started paying their fair share, greedy psychopaths
Came here after a bunch of Redditor’s *absolutely slandered* Hedge fund manipulators
Sameeee. I’m trying to really understand what’s going on
I think you meant to use libel (false statements that are written down) not slander (refers to false statements that are orally spoken)
Though you would have a tough time proving either in court
😂
1:48 the editor pulled a pun
I have fun occasionally
great explanation and examples, very easy to understand, presentation was fun to watch, giggled abit on some parts. very well done, thanks a ton mate.
"put your redbull and gambling addiction to use' made me laugh loud, love your videos mate, keep'em coming!
Unfortunately, apart from entertainment, you will not learn anything. It's pretty much that late-night last cup bull shitting bable.
Would love to learn more about Venture Capital funds. Will you do a video on that?
Keep the good work!
Since most of your video referred to US tax rates and such, I assume that you're trying to talk about how things work in the US. Your explanation of the ownership structure and the assets of a partnership are somewhat wrong. They're still somewhat accurate in the broad strokes and what it all means for tax purposes, but a lot of the details are wrong. Partnerships are taxed in a way such that it supposedly would have the same effect as if the partner held a proportionate interest in those assets equal to his percentage interest in the partnership, and dealing with all the special cases involved makes partnership tax law quite complicated. The partnership is still a separate legal entity, and enters into contracts in its own name. You also said partnerships aren't companies, but here you confused the meaning of corporation and company. Partnerships are not corporations, but they are companies. I don't know if this is a lack of familiarity with US law and terminology or a slip of the tongue. Corporations are definitely taxed quite differently than non-corporations, and any entity with more than one owner that's not a corporation is taxed as a partnership. But the term "company" refers to any entity, incorporated or not, and doesn't really have any legal meaning in US tax law.
The loophole you mention of shipping your profits to an insurance company in an offshore jurisdiction still works, but makes you subject to the Base Erosion Anti-Abuse Tax (BEAT) that was introduced in the TCJA tax overhaul. The rate isn't as high as income taxes, but it specifically helps deal with the practice of having US companies pay deductible expenses to related companies that are not required to pay US taxes, thus eroding the tax base of the US. How it's calculated is very complicated, as it needs to be to prevent people from abusing tax laws with convoluted structures while not overly penalizing those who are operating in the normal bounds of business. www.taxpolicycenter.org/briefing-book/what-tcja-base-erosion-and-anti-abuse-tax-and-how-does-it-work
The carried interest loophole was also supposed to be closed by the TCJA, but unlike with the BEAT, I haven't done any continuing education on the topic so I don't know exactly what happened there.
Steven Glowacki are you, uh, an IRS agent?
Bump up you go
bump this
buuuuump
Surely you've got to explain some of how he was wrong or this comment is pointless.
I have been following you since the very beginning and have seen you grow. Your work and dedication has inspired me to start my own channel and put in a lot of effort
Looking forward to your support and advice as always!
what did I learn: hedge funds are great to avoid taxes ! even with 0% growth, the fact that you aren't paying income tax makes it a good thing
That is, for the managers themselves
Hedge - is a tax laundry as losses are brought forward so investments are tax negative.
That makes no sense. They still pay a capital gains tax. I'd rather pay the capital gains tax and make a return than make nothing and lose to inflation.
I love how you mention bobby axelrod in there
man every video of yoursis super informative Thank You! Please keep it up
Just wanted to tell u that u are the most informative on these topics. Learned a lot
Hedge funds charge really high fees for underperformance
Well some don't, but in general you are right.
Awesome profile pic dude :)
A bit like buying a rolex then?
Hedge fund fees are at all time lows. Most are just trying to have absolute returns no matter the market condition, and hedge against a bear market.
As a former stockbroker, hedge fund managers are premier sales people. That being said, it's a freaking hard af job to land as a lot of people in the finance industry are competing for that position. Nowadays however, I've seen the wealthy just doing their own hedging. I've talked with a dude who has an account that is just for shorting stocks and was shorting about $1 billion worth of stocks.
You nailed exactly what I myself is doing in the first 20seconds. My 50 TABS open on my Computer on all things Finance and wanting to know more about Hedge Funds. :)
Brilliant overview, as usual. Thanks mate!
Brilliant growth on subscribers mate. Been here since when under 5k followers which wasn’t really that long ago 👌🏻
Not long ago at all!
Do a video on private equity!!!
Thank you this was very helpful and informative 👍👍
Hey EE, have you considered making a video about Keynes's idea for Bancor? It's an intriguing idea I've almost never seen discussed outside the likes of IMF White Papers, and the logic behind it (punish trade surpluses as much as trade deficits in order to stabilize global currency flows and avert recessions) is so interesting that I think it deserves more attention. At the very least, I'd love to see an actual economist try to explain its bewilderingly simple (yet definitely bewildering) logic, and you could cover the Triffin Dilemma/Triffin Paradox for those of us who want to see you tackle more arcane concepts in economics. Thanks for the videos.
I believe that when it come financial market, working for the money shouldn't be the priority rather we work for the assets that are profitable by so doing cash flows in.
While there’s merit in only risking money you can afford to lose, there’s also a risk with being undercapitalized.
A profitable outcome is not the result of luck but to apply the right institute which are profitable with experience of professionals over countless economic shifts.
Yea I believe that every market is worth profiting from but not when one is naive.
I would like to be part of this similar service like this Jace, what's your take so far?
Fadel dymek I'm doing quite well investing with Mark Carey a licensed broker and a portfolio manager. You can as well reach him if you need help with your portfolio.
Imagine making high quality videos with a 4 day gap/2 day gaps. Clap clap
Fantastic episode, brilliantly explained, thanks!
I love this channel! Thank you for the content.
No worries mate, thanks for watching :)
@11:43 "It means that with some careful accounting that hedge fund managers often pay a lower percentage of tax than the janitor who cleans their office at the end of the day."
Sounds like a fully sustainable way to structure civilization that couldn't possibly collapse within a few decades.
Yep I see no problems here...
*liberterians leave the chat*
NO YOU CAN'T FORCE AN UNSUSTAINABLE REGRESSIVE TAXATION SYSTEM ON THE WORKING CLASSES THAT WILL MAKE THEM ANGRY AND LOWER THEIR STANDARDS OF LIVING
america: tax cuts for the rich go BRRRRRRR
Just cause the whole, nobility don't have to pay taxes but the peasants do, didn't work for france in the 1700s doesn't mean it can't work now.
@@ggogg5689 Now here is a man that is sticking up for my interests, uhhh... I mean the people's interests! Yes, the people need to understand that if I get a tax break I'll totally invest it into factories in America and not Bangladesh because I care about people and not how little I get to pay those slaves, I mean workers!
You know i have a lot of unemployment jokes.
Alright, can you say one?
Sorry, they're not working
....
You deserve a stimulus check
to the guillotine.sorry wrong channel
so what do i do for a living?Copy paste memes.
As one business youtuber would say it:
Badda-Boom-Boom-Tsssshhhh
I'm sorry. I can't find your link about going in depth on Short-Selling in the description 4:55 i'm really interested in what you had to show about it. Thank you for the video! Really interesting!
The Australian accent is great paired with the quality of your videos. Thank you for your content.
Who else is watching this with GME stock price in another tab.
I am
GME TO THE MOON🚀🚀
Not all hedge funds are trying to "beat the market" because many don't invest in stocks. There are many hedge funds that invest in alternative assets (art, short term business loans, short term real estate loans, movies for example). The purpose of these in the client's portfolio is not to outperform stocks, it is to diversify. Even hedge funds that do invest in stocks and traditional assets may be using a strategy that has a low correlation to the overall market. Maximizing return is the highest priority for poor people. Diversifying and normalizing returns are #1 for wealthy people, maximizing is second.
Thanks for the time and effort
My pleasure!
5:33 Stonks only go up
false
I don't know why this is in my recommendations, but I love it
Gooble gobble one of us!
I started watching economics explained about 6 months ago and am loving it. I already do a lot of physics and math videos but it's really nice to see someone clearly and intelligently explaining one of the biggest factors that influence our day to day life.
I recommend staying around, I'm happy I did.
Just subscribe already!
Awesome video mate! How about making one explaining venture capital firms? :)
I was just studying about FnO and there you are with this video about hedge fund managers..
illuminati confirmed?
Hey Economics Explained, can you make another video on the economy of India because I think a single video wasn't enough to cover the economy of such a huge country.
Yeah I will probably re explore it at some point in the future
@@EconomicsExplained Thank you :)
*All hail r/wallstreetbets!!*
HEIL WALLSTREETBETS
To thumbs-up great content, verifiable by those in the know and good presentation video recommended.
Do a video on the SAPs their origin, effects, impact, rationale and alternatives.
4:52 - This is the second time now that you've said you'll leave aditional content linked in the description of the video without having done so.
Better term is institutional investing. Keep up the great work EE, the more everyone is educated on money the better off everyone is.
These are really fantastic videos, I don't know where you get all this good information from. Also if rich people could pay taxes that's be great.
I still can't say that I understand what/why modern hedge funds are, but I know more than I did before watching this video! Maybe it'll sink in better if I rewatch another day :)
Hedge funds are a misleading name. They are very UNhedged funds
More like Leverage Funds AMIRITE!!??
@@EconomicsExplained Economist's Jokes confuse me and I dont like it.
We like the stock
Can you do a video about legal tax avoidance strategies for Americans including offshore banking and expand on the offshore insurance company startup you touched on in this video?
Wow INCREDIBLE VIDEO MAN !
4:54 there is no video in the description, again!
I was looking for the same thing.
please do a video on the economy of Yugoslavia
it's in the plan. Every country will be done soon :)
@@EconomicsExplained how about new zealand or as notmal people call it "new what?"
"Hold up there tiger"... I broke out in laughter at the graphic...genius
😂🤣 was waiting for the "bobby axelrod" reference. was satisfied to hear it at the end.
Who els is watching this after the game-stop thing?
Pretty good video. Didn't have to have the "so, yeah" though. Interestingly, Bill Ackman isn't just running a hedge fund. He's running a closed-ended fund called Pershing Square Holdings, which invests alongside the hedge fund portion of Pershing Square. I really like reading about these hedge fund managers in books like The Alpha Masters, More Money than God, and When Genius Failed.
Wow! That was an eye opener! Was planning to put couple of millions in it for the retirement XD
@Economics Explained Can we apply this to general trading account with regards to insurance? then paying less tax
sure, If you can pay to have a reinsurance company set up in Bermuda.
"You can't stop me because I can't read!"
taps forehead
I had no idea there was a category called "sophisticated investor" and it's written into law. Why does this exist?
us laws to help them evade taxes and some benefits i assume, sounds like rebranding nobility lol
The idea is to protect silly average joes being brought into proprietary trading schemes that they don't fully understand ala wolf of wall street.
What it really means it identifies an investor as a high net worth experienced investors. Important in connection with the "fiduciary responsibility" of the Investment Advisor.
Such clients can take big risks, they know what they are doing and they will not be broke if an investment goes south on them.
If you are a retiree and invest your life savings, the Investment Advisor is not allowed to let you invest in high-risk investments because he has the responsibility to warn you and protect your interests.
Nice video! I must add that its not the profit, but the sharpe ratio. A portfolio with 7% returns and 5% volatility is much better than portfolio with 7% returns and 10% volatility.
Hey! Amazing video. It would be a really good idea if you could make a video about Argentina an its recurrent crisis ;).
*Where do you get your B Roll, asking for a friend...*
Storyblocks mostly. It's an annual subscription but it is a lot cheaper than sites where you have to buy each clip individually.
@@EconomicsExplained Sometimes, when watching your videos, I wonder what is going through the heads of the actors in the B-roll. And that B-roll is like the muzak of film. It's kind of mesmerizing, actually...
@@EconomicsExplained Thank you 👍
Hedge Funds Explained: You're actually thinking of a Proprietary Trading Shop
I have never seen so many ads in you in my life 🤯🤯
This video was exactly what i was looking for
Index funds are losing their ground... They are just fueling bubbles, and sticking you with garbage when only a few stocks are driving the entire index...... As we move into the information age do you really want to hold the entire index? You dont... Basket pick
So choose :-) good luck with predicting the future
@@Thesupermachine2000 don't think you have read ray Dali's book. How many of the top 30 US companies in the 70-80's still exist today. As someone who has done CFA, funds create good passive investment returns. However they do create bubbles. When you own an ETF you don't own the actual shares in the underlying. What happens if the ETF has to restructure? well means they have to liquidate their asset positions that are no long necessary creating downward pressure on prices
Liverpoolaussie21 you didn‘t do CFA, otherwise there would be at least one correct sentence in that paragraph
Buy safe stocks if you want to be safe, not indexes
I heard you used to be able to get over 5% with a savings account.
When I was a kid I was making that in my savings account that credit union.
Most of the early and even mid 90's. It's why it's rather sad to see the pathetic savings today... and CD's they're even worse than a savings account back then.
And we wonder why we have investment boom and bust cycles increasing in oscillation and devastation. And businesses are consolidating to fewer and fewer.
End game of capitalism though... consolidated a few or one big corporation that owns it all... then it either goes broke because it can't find enough buyers as everyone is broke and spins off all its capacity. And/or mass of people so poor rebel and change the system. And/or to draw attention elsewhere a war is started with some other nation. Nothing like a war to pacify the people... seriously though a congressman back in 1860's just as the US Civil War was coming to an end, suggested going to war with a variety of nations as way to unify (pacify) the country.
Of course, those were the days when you paid 20% on your mortgage.
Next Video Suggestion: Insurance Companies (Auto, Home , etc), compared to Commercial Banks (Day-to-Day Banking).
Brilliant video🤩
How to make billions without contributing anything to society, and dodging taxes to the society which allowed you to make your money
I mean, you aren't wrong..
@@EconomicsExplained absolutely wrong, generating wealth for all people of society. Don't see how that isn't contributing anything.
@@Sam-fs1ok 😂😂😂 For all people of society! That's a good one!
why not do it if you can? And are you really not contributing to society this way? You're still fueling the economy by existing. You're not actively harming anyone and you even manage to stop funds unnecessarily going to the wasteful hands of the government, which is morally the right thing to do. Governments need their taxes, sure, but not at the rate they take from you.
@@Sam-fs1ok
The company making the product is generating wealth; the people betting on the success of that company aren't.
The people mining oil or copper or some other material are generating wealth; the people betting on the price of what they are mining aren't.
The farmer growing crops is generating wealth; the people trading futures back and forth between themselves without ever producing or consuming the crops aren't.
Bernie Madoff was good for consistent returns
Yeah funny that aye?
Most managed funds link themselves heavily to indexes anyway so unless the fund charges extremely low rates you are better off long-term just going with an ETF that follows one of the big indexes like the S&P.
Hello Mr. Explained. Around the 2:30 mark you talk about investing into ETFs with Vanguard for a large wealth investment. I would like to see a video on this idea. Like if someone were to win the lottery or rich aunt Sue passed and left piles of cash would it be a better idea to just invest myself into ETFs or go for the financial advisor or hedge fund so they can move money around and do tax saving strategies (loop holes). Love the videos! Thank you.
anyone here because of Gamestop?
re watching because of GameStop lol
Thank you!
Do a three part video explaining the WTO, WB & IMF
Their role
Their origin
Their effect on the global economy
Their problems
How you would make them better
$GME
8:36 Ah cool, so basically just *tax evasion*
Video Suggestion: Economics of Venture Capitalists
thanks for this