Joseph Healey Hedge Fund

How are hedge funds structured? - Joseph Healey Healthcor

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:34:00 +0000

No one hedge fund resembles another, and the name of the game in today’s world of hedge fund investments is diversity. There are any number of strategies used with hedge funds, and many different types of investments to boot (everything from regular stocks and bonds to internet start-ups and currency). Let us not forget that hedge funds located outside of the United States function very differently from those within it! However, there are a few things about the structure of most hedge funds that everyone should know.

· Hedge funds are private partnerships (or companies) between investors and skilled money managers. Investors do not make the investment decisions regarding the hedge fund portfolio; that is left up to the money manager. There are no assets or employees within the hedge fund – aside from, of course, the investments themselves.

There are other roles within the hedge fund aside from investor and manager. These may include: administrator, prime broker, and distributor.
Depending on where the hedge fund is located, its legal status (including regulations and taxes) may differ greatly. In America, hedge funds are considered private investments and are therefore unregulated (although in some ways that is a misconception; there is indeed regulation for all kinds of investments, including hedge funds. The major difference is that in most cases the SEC does not regulate hedge funds). In offshore locations, the investor is required to pay fees, rather than the money coming from the fund itself. Taxes on offshore hedge funds are also paid out by the investment manager, according to how much they receive for managing the hedge fund.
Location really is a huge key to how hedge funds work. While many hedge funds may be technically located offshore, the majority of popular hedge fund managers can be found on shore, near financial hubs.
Most hedge funds are designed to be open ended. This means that investors can withdraw their money periodically from the fund, and also add money as time progresses. There may be a requirement for a minimum balance, and of course a requirement to open a hedge fund, but there are typically no other restrictions set on the balance amount. (Frequent withdrawals from hedge funds are not encouraged, however.)
Before redemption of the hedge fund, usually profits are not distributed to investors. The profits from hedge funds are typically arranged to be withdrawn either monthly, quarterly, annually, or bi-annually. Individual hedge funds may have specific policies about when money can be withdrawn from the hedge fund.

This was a brief outline of how hedge funds are structured and work. The reality of hedge funds is that they are complicated, diverse investment portfolios. As mentioned above, no hedge fund truly resembles another, even if the specialization of the investment(s) is similar, or if the strategies used are similar. A hedge fund located in New York is going to be very different from one located in London, and even two hedge funds both located in New York are going to be nearly unrecognizable from each other.

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Hedge fund trends 2012 - Joseph Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:21:00 +0000

It may be beneficial for financial experts, and for investors and their money managers, to track hedge fund trends regularly. While the up and down nature of the financial market (even the hedge fund market, which promises absolute returns), it can be incredibly useful to analyze trends and attempt to see what will be happening in the future. The issue with trends, of course, is that they come and go, and with sometimes volatile hedge funds, they can do so very quickly. Still, here is a brief look at some of the most recent trends in the hedge fund market, looking specifically at the first quarter of 2012.

By the nature of tracking trends, we must look back into 2011 to see what has changed – and what has carried over – from then. The most noticeable carry-over is the fact that bigger hedge fund investments seem to be doing the best. Smaller hedge funds are not seeing the same large returns, and in some cases may not be breaking even. Along with the continued asset rising of large funds, one of the trends that are noticeable in the first quarter of 2012 is the fact that hedge funds themselves are increasing. During the first three months of the new year alone, hedge funds increased by an average of over four and a half percent.

Another trend that experts are keeping their eyes on is the fact that global investing is coming out on top. Emerging markets seem to be the place to invest, now, and it shows no signs of changing any time soon. Global funds saw great advances in assets during the first quarter of 2012 for sure.

Going back to performance in 2011 having an impact on 2012, it seems as though much of the positive performance seen now can be attributed to 2011. Net flow from 2011 that went to large funds made up one hundred and thirty-six percent.

While there have definitely been some “highs” in the trends of 2012 (and 2011), the fact is it wouldn’t be the investment market without a few lows. There have been some significant issues with some major hedge fund players; Paulson & Co has been having difficulty, and fell in 2001 from a summer month thirty-five billion (and change) to around twenty-eight billion in December. Paulson & Co are definitely not the only ones having trouble.

Overall, the beginning of 2012 looks to be promising. With new capital pouring in to the hedge fund market, and the best performance the market has seen at the beginning of a year since way back in 2006, it seems as though hedge funds may be in for a great year. However, it is always important to keep tracking hedge fund trends, especially the negative ones. The wise investor or fund manager knows better than to trust calm waters for very long; things can, as mentioned before, change very quickly, and a complacent hedge fund is one that will see loss. Typically, hedge funds must be managed aggressively.

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Hedge fund indexes - Healthcor Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:16:00 +0000

A hedge fund index reflects the average performance of hedge funds and makes that information available to those who seek it out. It may be investable or non-investable (and, in such cases, purely informative rather than an investment opportunity), and hedge fund indices are quite different depending on which “method” is used to collect and analyze the data. This is a simplistic outline of the different types of hedge fund indices, how they work, and some of the issues that arise with using hedge fund indices in the first place.

First, the question of usability must be brought up. Many people argue that hedge fund indices are unsubstantiated, are prone to bias, and cannot be relied upon. It is true that much of hedge fund index information is self-reported by hedge fund companies, which can lead to a bias. As hedge funds are private investments, there is no central agency to which they must report, and that makes finding hedge funds willing to divulge their returns and performance problematic in many cases. Do not forget that hedge funds are incredibly diverse, as well, and that information on one hedge fund may not remotely resemble information on another. This can make it even more difficult to collate data on hedge fund performance in a cohesive way.

The first form of a hedge fund index is known to be a non-investable index. This type is the one most prone to self-selection bias, as all performance information gleaned from hedge funds was gotten voluntarily. A non-investable index tracks performance in a variety of ways, using mean, median, and weighted mean, and as such, any result from a database search may not match another. Some people still consider it a valuable tool – and any information is better than absolutely no information, in any case.

The second form is the investable index. The main difference is that investment portfolios are created by the index manager, and interested shareholders can invest in the portfolios (as long as they accept all of the terms set forth by the index provider). This creates a functioning investment opportunity, very similar to a hedge fund portfolio in and of itself.

Finally, there is hedge fund replication. This tracks the historical performance of hedge fund returns, and using the data discovered, creates models that illustrate how hedge fund returns will behave under different investment scenarios.This model is also turned into a portfolio that can be invested in. This is the newest of the three forms of hedge fund indices, and because of its newness, there are still questions as to how well this hedge fund replication index method will work in the long term. It is not yet known how accurate hedge fund replication may be in practice.

Despite the drawbacks to using any of the hedge fund indices, there are some definite bonuses. Financial experts (and money managers) are able to study the hedge fund market to better understand how it functions and changes, and can adjust their strategies accordingly.

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What are the regulations regarding hedge funds in other countries besides the U.S.? - Healthcor Joseph Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:13:00 +0000

Hedge funds have definitely gone global. While America is one of the “hubs” or financial centers for hedge funds and other types of investments, the international market has seen the lucrative promise of hedge funds, and jumped on board. Additionally, many Americans have seen the benefits of holding offshore hedge funds, and that brings an entirely new dimension to the subject of hedge fund regulation outside of the United States. With so many domestic individuals seeking international hedge funds because of their different laws and regulations, it can complicate matters.

Offshore hedge funds are perhaps the most popular “destination” for this type of investment. There are a few reasons for this; one is that there are no universal requirements for “accredited” investors as there is in the US. Another reason is the structure of offshore hedge funds themselves; they are structured as corporations/companies rather than limited partnerships. What this means for offshore hedge funds is that there is virtually no limit to the number of potential investors, whereas in America, there are strict regulations in place with regards to that. However, there is a “hang up” to Americans investing in offshore hedge funds – they are only legally permitted to do so if they have established offshore life insurance, or established an offshore trust. The popular offshore locations include the Cayman Islands, Dublin, Luxembourg, Bermuda, and more.

Singapore is fairly loosely regulated, especially in comparison to Hong Kong and other Asian financial centers. Smaller funds will continue to be able to operate without licensing even as their regulations and rules change. In Hong Kong, the regulatory structure of hedge funds is very similar to that of mutual funds. In India, the Securities and Exchange Board of India (SEBI) decided to place a ban on any investments made by unregulated companies/entities with participatory notes.

The European Union is a big center for hedge funds, and they have their own set of rules and regulations. They are not too dissimilar to regulation within the United States, choosing to focus on the regulation of money managers. The FSA (Financial Services Authority) in the United Kingdom requires that fund managers register and become authorized, adhering to the FSA’s regulation. As there are many countries within the European Union, and each has their own set of regulatory laws, having cohesive legislation for the whole EU is difficult. However, with the passing of AIFMD, the EU is one step closer to being able to regulate hedge fund managers all across the board.

However, it should be noted that the Dodd-Frank Act from the US will affect overseas hedge fund investments. Any hedge funds with more than fifteen American investors, and with twenty-five million dollars or more, must register with SEC. Some international funds, especially in Asia, had already registered with the SEC prior to the act, but this act ushers in a whole new era of international hedge fund regulation.

It does seem as though there is a shift internationally to increase regulation on hedge funds, but thus far it has not been overwhelming.

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Controversies and debates about hedge funds - joe healy

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:07:00 +0000

Hedge funds have seen their share of debate and controversy over the years, but none so much as after the year 1998. That was when Long-Term Capital Management, a speculative hedge fund in Connecticut, failed and required bailout from other financial companies and institutions. The failure of LTCM, which had been using absolute return strategies, shook up the financial industry, and many were gravely concerned about the future of hedge funds. When information about LTCM’s practices, including evidence of tax avoidance, became public knowledge, the media, the general public, and even some of the financial sector were up in arms about ramifications to the hedge fund industry.

Some saw the collapse of Long-Term Capital Management, and their alleged illegal activities, as a sign of pending doom for many other hedge funds. The bailout, which was under the supervision of the Federal Reserve, ended up costing financial institutions over three and a half billion dollars – and it was a desperate measure to stop the rest of the financial market from experiencing difficulties. The ultimate losses of LTCM cost around four and a half billion dollars, and the hedge fund eventually went under in 2000. With such a huge scare, and such a huge bailout, there was great concern about systemic risk (the whole financial system failing). Any hedge funds who acted similarly to LTCM were considered, by some, to be at risk of failure. Multiple hedge funds requiring bailout to stave off systemic risk was a very real possibility at the time. However, LTCM was the major failure and the biggest bailout to date, and there has not been any systemic failure before or after LTCM.

The fear of systemic risk is far from the only criticism that hedge funds have seen. A major concern with critics is the fact that there is so little transparency required in hedge funds. For one, it makes it difficult to track average performance of hedge funds when so few comprehensively disclose information. For another, a lack of transparency can mean a bigger opportunity for fraud, and there have been several big cases of fraud in the last several years that critics cite as evidence that there should be more disclosure and more regulation. However, hedge funds remain private investments, and are not – in most circumstances – required to divulge information to a third party. There is also a concern of conflict of interest in cases where Americans do not use third parties to act as custodians or administrators of their funds; in some such cases of proven conflict of interest, there have been allegations of fraud and securities violations.

Hedge funds may be debated in the public realm, and may be occasionally subjected to new rules and regulations, but it remains fairly unregulated compared to other investment types. Unless hedge funds are some day no longer considered private investments, there is no sign of this changing in a major way. The SEC does investigate allegations of insider trading and other fraudulent activities when it can, but it is not as involved with hedge funds as many would prefer.

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What are the regulations regarding hedge funds in the United States? - Joseph Healy

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 15:02:00 +0000

While the average person might hear the word “unregulated” tossed around in regards to hedge funds inside of the United States, this is technically untrue. Yes, hedge funds are considered private investments, and therefore investors and hedge fund managers (either as partnerships or as a company) do not have to register with the SEC (Securities and Exchanges Commission). However, there are some exceptions to that rule, and most importantly, hedge funds cannot legally be fully unregulated.

First of all, some of the multiple exceptions to hedge funds not being required to report information to the Securities and Exchanges Commission include:

Even though a fund can have unlimited investors, if they number more than four hundred and ninety-nine in total, they must register their securities with the SEC, according to the Securities Exchange Act of 1934.
If a hedge fund wants to advertise or make public offerings, they must sell said offerings under the private offerings rule of SEC. This requires either filing a registration statement with SEC, or adversely following the private placement rules under the Securities Act of 1933.
If a hedge fund adviser who is registered with the SEC wishes to charge a performance or an incentive fee, all investors must meet the standards for qualification set forth by the Investment Advisers Act of 1940 Rule 205–3.

As for other regulation that hedge funds are subjected to, compliance with the SEC is only the beginning. One of the most efficient ways to keep track of hedge funds, and to try and keep a handle on potential fraud, is to make stringent rules for investors. Investors must meet a specific set of criterion (and some of this will vary depending upon state) before they can begin to invest. For example, investors who meet a qualified purchaser qualification will have five million dollars as a bare minimum in investment assets. An investment company would need a minimum of twenty-five million dollars in order to qualify.

Even though the regulations for hedge funds are quite lax compared to some other types of investments – and keep in mind this is because hedge funds are considered private investments – they are indeed regulated. Fraud is a very real possibility in any investment scenario, and when such large sums are dealt with in hedge funds, schemes and fraud can occur and must be prevented. There have been several high profile cases of hedge fund schemes in the news over the last several years, and that has drawn both media and public attention onto the fact that hedge funds have a very unique regulatory status. In fact, there have been several attempts (mostly by the Securities and Exchanges Commission) to bring more regulation to hedge funds, including a rule change that required all hedge fund advisers to register under the Investment Advisers Act. This rule change was subsequently contested, overturned, and sent back to the SEC for review. Some are eager to regulate hedge funds, and some continue to hotly contest the practice.

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Are there risks with hedge funds? - joe healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:52:00 +0000

There are many risks that go along with hedge fund investments. To begin with, hedge funds often deal with large investment amounts, and while profitable returns on those amounts are highly satisfactory, when there is investment loss, it can be significant. Another aspect to keep in mind with hedge fund risks is the fact that they are considered alternative investment products, which are typically known to be high risk.

Skilled managers do their best to see big returns on the invested money. They may use a variety of methods when managing the hedge fund portfolio -- and this can include leveraging, which is another method that has a steep risk. Leveraging makes investors big profits very quickly, but on the other side of the coin, it can also lead to big losses. Remember that hedge funds are primarily illiquid, unregulated (though the company/money manager must adhere to all trading laws, and the majority of investors must meet specific requirements to open up a hedge fund, the hedge fund itself is not regulated), and may involve hedging against market downturns. While there is often potential to see profitable returns even when the market is unstable, there is still risk.

Another issue with hedge fund risks that should be addressed is transparency. As hedge funds are private investments, the money manager (either a partner or a company/team) is not required in many cases to disclose valuation information, important tax information, and even the underlying investments themselves. Some of this information will be released to the investor, yes – but not always when the investor would find it crucial. The investor may not even know what information is useful to them in determining how the money manager is doing; the money manager is the one with skill and knowledge, and the investor relies on them for their expertise. If the money manager does not disclose information, it may stop the investor from knowing exactly how precarious their investment is. Many investors who would receive the information, and also understand it, may want the manager to make changes, or may consider taking their business elsewhere. The money managers have autonomy to make decisions without much disclosure, and in some cases, this can have negative consequences.

Hedge fund investments can be volatile. There are ups and downs in the vast majority of these investments, and it is up to the money manager to make the majority of decisions without much input from the investor. Putting that much power into a company or a person’s hands comes with its own set of risks; people are not foolproof, not matter how skilled they appear to be. Then you add in how tumultuous the market can be, especially when it comes to commodity trading, global markets, and other unstable situations, all of which are common to hedge fund investments. Investors must trust in the money manager to make aggressive decisions as to the “health” of their hedge fund portfolio, and sometimes the money manager will not deliver satisfactory results.

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How are hedge funds structured? - Joseph Healy

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:49:00 +0000

No one hedge fund is structured like any other. There are a number of factors that come into play, mostly having to do with what state (or even country) the hedge fund is located in, the hedge fund manager’s practices, policies, and specific skill set, and of course the amount of money in the fund itself. Furthermore, the diversity of the investments in the hedge fund changes the structure of the hedge fund as well; a typical, well-managed portfolio has more than one type of investment at a time. In a way, hedge fund investments can be “mixed and matched” in order to achieve the best results. Investment managers can use a risk parity strategy with one investment, and on another use fixed income arbitrage, for example.

Typically, a hedge fund is comprised of an investor (either an individual or a company), and the investor enters into a partnership with the hedge fund money manager – or (when there are multiple parties) else enters into a company with the manager. Once established, the hedge fund company will make investments; this is the hands-on part of the partnership or company. The investor virtually has no role in the investment process, and is not nearly as involved in the decision making, business practices part of the hedge fund.

Other people may provide services in a hedge fund as well. These may include a distributor, who primarily markets the funds to investors; a prime broker, who do the majority of the work with lending money and securities; and an administrator, who handles the withdrawals and subscriptions of investors. This is a very basic outline of what various people within the hedge fund may do, and every hedge fund is different. A hedge fund never has any employees or assets other than the investments within the fund itself.

The taxation and regulation of hedge funds varies greatly depending on the location of the fund itself. For example, hedge funds in America are considered very loosely regulated (they typically do not have to report to SEC, for one). A lot of hedge fund companies take advantage of tax opportunities by establishing the fund in an offshore financial center, so that the investor pays taxes on the portfolio, and it doesn’t come out of the fund itself. However, despite many hedge funds being technically located offshore, a lot of investment managers are located onshore.

Legally, hedge funds are usually formed as limited partnerships, or limited liability companies. The general partner is the investment/money manager, and the limited partner(s) is the investor themselves. Hedge funds are considered private investments and are not held up to the same amount of regulation that other investments are. While hedge funds are often referred to as “unregulated,” the fact is that there is some regulation that has to take place by law – it is simply different than regulation for other types of investment. An example of how hedge fund regulation functions is that investors are heavily scrutinized and must meet certain criteria before being approved.

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Hedge fund trends - Healthcor Joseph Healy

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:38:00 +0000

Hedge fund trends tend to change over time – hence why they’re trends! Hedge funds themselves have a long and storied history of changing over time; think of the massive diversification into the internet with the Dot Com boom, and more recently, the newest regulations with the Dodd-Frank Act reshaping traditional hedge funds as we know them. Recent hedge fund trends are all over the map (and there is no guarantee that these trends will continue), but here is a small selection:

Hedge funds in the early part of 2012 have shown a move toward global markets. The fact that hedge funds have a very large global presence, and that there is virtually no limit to what kind of investments can be made inside of a hedge fund portfolio, means that now is the perfect time to invest in emerging global markets.
The uber rich have been careful with their assets lately, seemingly looking to protect themselves against margin calls and looming finance changes. Many hedge funds have taken their assets out of funds in the form of cash. Hedge fund portfolios are still going strong, though, with 2012 seeing the best performance in the beginning of a year since 2006.
Managed futures are up, as are global macros!
Larger funds are seeing larger inflows. Small funds are still mostly experiencing redemption, but not the kind of net inflows that larger funds are seeing. The number stands as funds with more than one billion dollars in assets receiving 78% of inflows.
Hedge funds that beat their ‘peers’ in 2011 had similar results in 2012 – at least thus far. 57% of those peer-beating funds saw net inflows in the first quarter.
The trend did seem to be that those hedge funds which saw positive results in 2011 continued to do so into 2012. The majority of large hedge funds saw net inflows in the first quarter of 2012, where 63% of mid-size funds with positive performance in 2011 saw net inflows into 2012.
There was a marked trend of investors who discovered their investments had under-performed shifting out of them and heading for seemingly greener pastures. This is usually the case (no investor typically has the patience to “hang around” an under performing fund), but the numbers were higher in the first quarter of 2012.

One of the biggest changes of 2011, leading into 2012, is the continued implementation of the government’s insider trading charges and other legal actions. Some funds have closed, many managers are under investigation, and some funds are doing poorly in general due to the continued investigation and allegations. While it is true that some funds have had a rough year so far, a good portion of funds are seeing decent to good profits on their invested assets. It remains to be seen if these positive trends

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Hedge fund indices - Healthcor Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:27:00 +0000

Like many other types of investments, hedge funds have indices that track the industry. There are some differences between hedge fund indices and more traditional investment indices, as hedge funds are considered private investments, and more than that, they are mostly all illiquid. This poses some issues with the reliability indices; how comprehensive, and thus satisfactory, are they, really? This is part of why several different methods of hedge fund indexing have been created over the years.

Regardless of whether or not hedge fund indices are fully satisfactory, there is no question that they exist, and that people use them. There are generally three types of hedge fund indices, and these include:

Non-investable indices – Using a hedge fund database from which to measure performance, non-investable indices are the oldest type of hedge fund indices used. The databases use weighted mean, medium, and mean in order to measure performance. No one database will represent all funds, which means that no one database is the same as another; every single performance result will be different. This is an issue that some have with the reliability of non-investable indices. Another issue that some have with them is that they are subject to a lot of bias. For one, database reporting is voluntary, which in some cases may lead to self-selection bias. Additionally, hedge funds may come and go (fail and succeed, if you will) annually, which changes the database selection significantly every year.
Investable indices –the main goal of an investable index is to eradicate some of the bias and issues raised with using a non-investable index. The main method it does this is by making the index return available to all shareholders. In an investable index, the index provider/manager will select certain funds to develop something somewhat like a “fund of hedge funds” portfolio. The investments created by the index provider must be accepted by any hedge funds, in order to be properly investable.
Hedge fund replication – this is more of a statistical look at how hedge funds have performed, analyzing past returns in order to make models of how hedge funds will perform under various circumstances with different assets. The model(s) can be used to make an actual portfolio of assets, and thus makes the index investable. Of the three types of hedge fund indices mentioned here, hedge fund replication is probably the newest. One of the pitfalls that goes along with this index form being so new is that there is very little history or data to support its usefulness in practice – especially when one considers the private, rarely disclosed nature of hedge funds themselves.

This is essentially the beginning of what hedge fund indices entail. They are meant to give investors – and the financial market as a whole – a view of what average returns on hedge funds are, and how they change throughout time. Even though there is some question as to the reliability of hedge fund indices, given that most of the data found within is self-disclosed and therefore very limited, they are popular and continue to grow.

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hedge funds joe healy - What are the regulations regarding hedge funds in other countries besides the U.S.?

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:12:00 +0000

Regulation of hedge funds does differ when taken outside of the boundaries of the United States. However, much of the regulation on hedge funds throughout the world does resemble the regulation in the US. In Europe, for example, the primary method is to regulate the financial advisors/managers of the funds. The managers are required to register with the FSA (the Financial Services Authority). Within the European Union, there have been some differences with regulation between different countries, but the hard and fast rule is that EU fund managers are required to register.

Recently, something called the Directive on Alternative Investment Fund Managers, or AIFMD, was passed by the EU to better monitor the activities of hedge fund managers. Countries within the EU are required to adopt the practices of AIFMD by 2013. It is quite an undertaking for every hedge fund manager within the European Countries to comply with the regulations in AIFMD, but AIFMD has made certain allowances to make the transition easier. For example, they have introduced a sort of passport that enables any hedge funds authorized in a country in the EU to operate throughout the entire EU.

Obviously Europe is not the only place aside from the United States that participates in hedge fund activities. An incredibly popular option for those abroad, and even for a portion of American citizens, is to run the hedge funds through offshore locations. This includes Bermuda, the British Islands, Dublin, the Cayman Islands, and many more locations.Any hedge fund that is run through an offshore location has to comply with the individual regulations there. Offshore hedge funds are quite different from other types of hedge funds; one example of this difference is the fact that the funds are valued as net asset value (NAV), not as account balances as with domestic funds.

In South Africa, registration with and approval from the Financial Services Board (FSB) is required for hedge fund managers. Also in South Africa, much emphasis is placed on local investment rather than international. In Singapore, hedge funds are less regulated and have fewer licensing requirements than other Asian hedge fund “hot spots,” such as Hong Kong. Singapore is a popular hedge fund location for this reason.

Recently, the Dodd-Frank Act was passed in the United States. This act has wide reaching implications and may change the nature of hedge funds throughout the world. Those international hedge funds that have more than twenty-five million dollars with fifteen or more American managers or investors must register with SEC. Managers who are registered with SEC are also required to file and keep information about managed assets up to date with the SEC as well.

This is only the beginning of overseas regulation for hedge funds. However, it illustrates that there is still a focus on regulating investment managers rather than the investments themselves. Hedge funds are popular globally, and there is a good amount of cross over investment from countries with financial hubs. Some seek to take advantage of the opportunities presented by offshore accounts, but new regulation may be changing some of that activity.

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Controversies and debates about hedge funds - Joseph Healy

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 14:08:00 +0000

There are several debates and controversies on the subject of hedge funds. A good deal of the debate has to do with the fact that there is supposedly systemic risk when dealing with hedge funds. Also, a good deal of attention is paid to the fact that there is very little transparency required with hedge funds, as they are considered private investments, and have limited regulation compared to other types of investments.

Critics of hedge funds have claimed that the nature of these high risk investments could lead to a domino effect in the financial sector with catastrophic results. Systemic risk refers to the collapse of the entire financial system, and so it may be difficult for some to picture one failed hedge fund or failed hedge fund company bringing the entire system down. However, people who feel that – if such a failure should happen, and it should be noted that failure has happened on scales both big and small – a major failure could occur with one hedge fund, and be seen in hedge funds that are similar. Many pro-hedge fund people debate this claim of systemic risk, because failure has already occurred in many hedge funds, and the result was that the financial system was nowhere near systemic failure. When a hedge fund does fail, they are typically leveraged low and the market as a whole can weather the failure fairly easily. In fact, dozens of hedge funds failed during the financial crisis – and there was still not systemic failure.

The other major issue that is up for debate is transparency. The lack of disclosure that is required regarding hedge funds is deeply troubling to some people, who argue that this atmosphere of secrecy can perpetuate fraud. In many cases, the investors themselves have very limited information on what the hedge fund managers are actually doing. An example of issues with transparency would be that many American hedge funds do not rely on third parties to perform crucial tasks, such as administration or acting as custodian of assets, and this has been shown to lead to conflict of interest, and in some cases even fraud. There have been several high profile arrests made of people who have engaged in fraudulent behaviors or schemes with regards to running hedge funds.

Another issue regarding hedge funds is the fact that it is extremely difficult to track performance statistics. Between the fact that the majority of hedge funds were not required to submit performance findings, and the fact that there is a restriction against public advertisement and offerings (leading to a reticence or outright refusal of fund managers to willingly put the performance information out to the public), it is incredibly difficult to comprehensively study how hedge funds perform on average. Individual funds can be studied, but many remain a relative mystery.

These are just some of the controversies and debates surrounding hedge funds. Hedge funds are a subject of some scrutiny after the financial crisis of recent years. The SEC, for example, is scrutinizing the possibility of insider trading within hedge funds; it remains to be seen, but there is always a chance that regulation will be strengthened for hedge funds.

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What are the regulations regarding hedge funds in the United States? - joe healy healthcor

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 13:57:00 +0000

While the fact is that hedge funds are considered “unregulated,” there are some major stipulations to that claim. No investment is legally allowed to be unregulated, and so the term unregulated may give people the wrong impression. Regulation is necessary for hedge funds, although in practice they are quite a bit different from other investments. In terms of regulations regarding hedge funds within the United States, there are several things potential investors (and the average person) should know about.

The most direct way that the US has found to regulate hedge funds is by regulating the practices of financial advisers (the money managers). While it is true that hedge funds are considered to be private investments, and that money managers have limited transparency when engaging with the investments, they must still adhere to any regulations set down. This regulation is to protect against illegal activity and fraud, and to protect investors who trust their money to another party. The biggest issue with money managers is compliance with mandatory record keeping. Money managers/advisers with over one hundred and fifty million dollars in managed assets are required to register as such. This is one way of “keeping track” of hedge fund investors and their managers. Because of the privately owned status of hedge funds, they are exempt from reporting with SEC (US Securities and Exchange Commission); although in some situations there are exceptions to that rule of exemption. One such exception is the fact that hedge funds with equity securities with more than four hundred and ninety-nine owners/investors have to report to SEC.

Under the Investment Company Act of 1940, hedge funds are limited to one hundred or fewer investors. Another requirement under the Investment Company Act of 1940 (which was what allowed hedge funds to be exempt from SEC in the first place) stipulates that there is certain criteria that potential investors must meet in order to be able to invest in the first place. If investors can jump through those regulatory hoops and become a “qualified purchaser,” the hedge fund investment can move forward and take place. Individuals who meet “qualified purchaser” status would have to have at least five million dollars in investment assets. Companies, meanwhile, would need twenty five million dollars in investment assets. That is the very beginning of the criteria for investor qualification, and much of it specifically varies by state.

Other regulations to keep in mind regarding hedge funds in the United States would be that hedge funds cannot sell their securities publicly. Hedge fund shares are not registered. Hedge fund managers that own more than five percent of any equity securities are subject to public disclosure as well. These are just some of the additional regulatory stipulations and scenarios that investors and managers must comply with. All of this information is the “tip of the iceberg” when it comes to hedge fund regulation inside of the United States. As mentioned earlier, specific regulations may vary by state, and this complicates an already confusing situation.

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History of hedge funds - Joseph Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 13:47:00 +0000

Hedge funds have become increasingly more well-known and popular over the last decade or so, after experiencing some historical ups and downs in terms of popularity. Hedge funds are certainly not new. This unique investment structure may have also changed a bit since its inception, but still resembles the original “model” of a hedge fund in many cases.

The person commonly credited with having “invented” the hedge fund is Alfred Winslow Jones (he also coined the term “hedged fund”). This Harvard graduate was a very remarkable man, and inventing the hedge fund was only one of his achievements. The hedge fund as we would recognize it in these modern times “debuted” in 1949, when Jones opened an equity fund as a private partnership. This did several things, and what was probably most important about it was that this merger meant the hedge fund was exempt from SEC regulation. Additionally, he combined leverage and short sales in a unique way to give him flexibility, and by doing so created a new model for investment practices. In 1952, Jones turned the private partnership into a limited partnership, and also paid a “performance fee” – these are two aspects of the modern hedge fund that are ubiquitous today.

Once Jones established (or, according to people who do not attribute the invention of the hedge fund to Jones himself, popularized) the general structure of hedge funds, they caught on. People were intrigued by the chance to invest without slavishly following the market’s trends, and also by the chance to invest in relative secrecy, not being regulated by the SEC. Throughout the following decades, hedge funds rose in popularity. By 1968, there were nearly two hundred.

Things changed during the following recession and stock market crash in the 1970s. Because of the substantial loss that the financial sector had seen, fewer people were willing and able to deal with hedge fund investments. However, by the 1980s, hedge funds had increased in popularity and were coming out of the slump of the 1970s, where the majority of hedge fund investments were single-strategy. By the 1990s, the media had popularized hedge funds more than ever before, and they were considered lucrative and full of new investors because of the stock market rise at the time. As the decade progressed, more strategies were added to the hedge fund investment “repertoire,” and hedge funds became truly and incredibly diversified.

The heyday of the hedge fund was probably in the mid to late 2000s. However, with the financial crisis at the end of the decade came a drop in popularity for hedge funds. The difficult financial times meant that a portion of hedge funds failed completely, and investor withdrawals were restricted due to liquidity issues. Despite the difficulties presented by the credit crunch/financial crisis, hedge funds continue to be popular and to thrive. Though they are often high risk, and though there will probably always be hedge fund failures, this unique type of investment continues to attract investors from around the entire world.

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What are the fees associated with hedge funds? - Healthcor Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 13:42:00 +0000

There are several fees associated with hedge funds, but the exact fees that an investor will encounter varies depending on, 1) the money manager they use, and 2) the type of investments they end up making. There are a few fees that are standard to virtually every hedge fund situation, and those are the management and performance fees that are paid out to the hedge fund manager.

Remember that there are usually two people (or a person and a limited liability company) at work together in regards to hedge funds. There is the investor, who provides the money with which investments are made, and then the money manager, who is a skilled, sophisticated professional with specialized experience working with hedge funds. The investor has a “back seat” role, and simply waits for their profits to come in, while the money manager manages the portfolio in a hands-on capacity. The money manager must obviously be compensated for their time and skill.

The compensation/fees that go to the money manager are, again, the management fee, and the performance fee. The management fee is usually determined annually, and it varies greatly depending on the type of hedge fund portfolio, and the money manager’s level of skill. The management fee is calculated to cover costs of operation, but with bigger and more sophisticated funds, the management fee tends to increase – as the skill level of the money manager should be higher too. The management fee is usually around two percent, but that amount will vary depending on the money manager.

The performance fee is based on profits. Many money managers will require a twenty percent performance fee, although this number will vary. However, a performance fee may not always be a flat, across the board eventuality of hedge funds; if, for example, if a fund fails to make more than its investment (essentially makes no money, or even loses money), there may not be a performance fee paid out.

There may be something called a high water mark that comes into play when a fund has not made money or has taken loss. This high water mark means that, in many cases, the money manager will not see their incentive (performance) fee until the fund is seeing profit. It is in the money manager’s best interest to make the investor as much profit as they can, as they will see a good deal of their paycheck from profit returns. And no wise investor will stay with a hedge fund portfolio manager that cannot turn a profit on investments!

Another fee that some will encounter in dealing with hedge funds is a withdrawal fee. This may depend on the money manager’s policies; for example, some managers have limits on how much money can be taken out of a hedge fund at once, and will charge a withdrawal fee in order to attempt to curtail frequent withdrawals.

These are just some of the fees that may be associated with hedge funds. When speaking to a potential hedge fund portfolio manager, enquire as to their specific fees and practices.

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What is a hedge fund? by Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Thu, 24 May 2012 13:33:00 +0000

The term “hedge fund” is used liberally these days, but not every person who encounters it is going to know exactly what it means. The ins and outs of hedge funds can be complicated, but simply put they are investment funds with a wider variety of options than many other types of investment funds, such as mutual funds. For example, mutual funds will deal primarily in one “area,” such as buying stocks and bonds, but hedge funds have a far wider reach than just buying and selling stocks. Think of a hedge fund as an entire investment portfolio; money invested in the fund may be used for many different purposes.

Hedge funds are mostly unregulated to give the investor more freedom, and they are typically geared to maximize the investor’s return profit. Because of their less specified and unregulated nature, hedge funds often deal with large amounts of money, and in turn can be quite risky if there is a bad investment decision made.Many different strategies are used in tandem in order to see a profitable return on the hedge fund investments.

Another defining characteristic that tends to set hedge funds apart from other investment types is the fact that they are usually private investments that are entered into as a limited partnership, or with a limited liability company. One person or company manages the hedge fund, and investors will usually trust the money manager to make sound decisions to put their money to work – for a profit. For example, the money manager may take the amount an investor has put into the hedge fund and decide that it is best suited to opening new businesses, or real estate, stocks, etc. The investor must trust that the money manager is making the best decision for their investment. One of the up sides to hedge funds is that there is almost no limit to investment possibilities.

One of the other reasons the hedge funds are set up in limited liability companies or in partnerships is so that, if the company goes bankrupt, investors cannot go after the company for an amount larger than what they invested into the fund. When dealing with large amounts of money (as hedge funds often do), a failed hedge fund can lead to large debt, and companies want to be sure they are only liable for what they can afford to repay in such a situation.

Of course, the money manager (the partner or company) will be owed a certain amount of the profits made. This can be an incredibly lucrative deal for many investors and companies; there is freedom to make decisions, freedom to take exciting risks, and -- as often seen in the current market – quite a bit of money to invest with. It is in the money manager’s best interests to make the investor big profits in their investments, as well – the more money the hedge fund earns, the bigger the sum the money manager takes home as their percentage of the profits dictates

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Hedge Fund Joseph Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Mon, 14 May 2012 19:06:00 +0000

Are there risks with hedge funds?

The short answer to the question “are there risks with hedge funds?” is “yes.” With any type of investment, there are risks! The market is not foolproof, and there are dozens of cautionary tales for every possible type of investment. As for hedge funds specifically, the risks are incredibly varied. Because of the nature of any given hedge fund, which functions as a kind of investment portfolio and may be dealing with multiple types of investments at any given time, the risks associated are ever-changing and depend on individual hedge fund portfolios.

Hedge Fund Risks

The main thing to remember about hedge fund risks is that the person delegated to control the fund, and to make investment decisions, should be a highly specialized and experienced money manager. Hedge fund management is not for amateurs. Hedge fund money managers must weigh their experience, knowledge, and study of the market against the goals of the investor, and must make sometimes difficult decisions. While hedge funds were initially developed as a method of reducing risk while seeking large profits, modern day hedge funds are often engaging in volatile markets. The higher the risk is, sometimes, the higher the gain is.

Hedge Portfolio Managers

If the portfolio manager does end up taking “risks” by investing in a volatile market, things can be unpredictable and unsteady. This is where investors have to trust in the wisdom of their money manager. Recall that it is in the money manager’s best interests to make sound financial decisions so that they will make as much money as possible, along with the investor. Irresponsible or unskilled money managers will not have longevity in their profession, and will not be able to hold onto clients.

Hedge Fund Portfolio Managers and Market Predictions

However, even the most responsible and thoughtful money manager with a great track record cannot predict every twist and turn of the market. What was considered a smart investment decision may ultimately fail to make profits. No one can predict the exact outcome of an investment, unfortunately, and there will be errors. If an investment does take a loss, the majority of investment partnerships will hold the money manager liable; many will not receive their performance fee, and there are often other safeguards put in place to make sure that the investor remains happy. Losing a great deal of money is always a possibility, when it comes to the world of investments, but a responsible investor who has done their research on their money manager will be prepared to weather the twists and turns of a tricky market.

Hedge Funds – Long Term or Short Term?

Hedge funds are also generally designed to be long-term, and so an investor who sees little to no profit one year may see a substantial increase the next. The key is to remain in contact with your money manager, and yes, sometimes – if you feel they have acted irresponsibly – to perhaps take your business elsewhere. Do not make the mistake of thinking that hedge funds are “easy” money; hedge funds have been known to make people a lot of money very quickly, but that is not the case for everyone.

Hedge Fund Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Mon, 14 May 2012 19:05:00 +0000

What are the fees associated with hedge funds?

There is no singular, all-encompassing fee associated with hedge funds. The funds span a variety of strategies and different investment types – everything from stocks to startups — and depending on what type of money manager the investor uses, the fees may vary. However, the common fees associated with hedge funds are as follows:

Management fee – this is basic, and is usually determined annually, though it may be paid out on a monthly basis. It will often be determined by the “two and twenty” (2% and 20%) factor. The “two and twenty” fee factor will apply to both the performance (see below) and the management fee; in such cases, two percent is taken annually from the fund’s net assets, and the twenty percent is taken from the annual profit made on the hedge fund.

Performance fee (also known as an incentive fee) – this is also a very basic fee that money managers (usually limited liability companies or limited partnerships) require for their services. Be careful to distinguish a performance fee from a management fee; they are two different fees, though they are often seen as a package deal, especially since two and twenty percent scenarios are so common.

Hurdle rates – this type of fee is sort of the baseline for rates of return. They are used to help determine performance rates, weighing the performance of the hedge fund investment overall against market standards. If hurdle rates are put in place as part of a hedge fund partnership, sometimes the performance fee will not be paid unless the return rate equals or surpasses the standards agreed upon. Hurdle rates were introduced to make certain that compensation will still occur, even if the returns do not exceed investment amounts.

Withdrawal fees – this is not quite as common as the perfunctory performance and management fees, or even hurdle rates. Withdrawal fees occur when money is withdrawn from a hedge fund (hence the name). There may also be fees for withdrawing over an allotted amount of money, or for withdrawing too soon. Generally, this fee exists to discourage investors from withdrawing funds from the hedge fund frequently.

Keep in mind that every hedge fund situation may be different. The money manager may not charge a two and twenty percent fee for their services and may have alternate rates. Specific questions about a money manager’s fees and practices should be directed to the company. There may also be additional fees not mentioned here. It is important to thoroughly discuss fee practices with partners and companies before making any decisions – and especially before making any investments.

Fees are in place to make sure that the money manager has been compensated for their time, effort, and expertise – and also to help incentivize them to make the best possible investments with hedge fund money. The higher the returns, the more money the hedge fund manager will be able to pocket at the end of the day. Successful hedge fund partnerships are beneficial for both parties, though the investor and the money manager play very different roles.

Hedge Fund Joe Healey

noreply@blogger.com (Joseph Healey Hedge Fund) — Mon, 14 May 2012 19:04:00 +0000

What is a hedge fund?

A hedge fund is a specific type of investment fund that is typically the domain of investors with a lot of experience. The reason why a hedge fund is perhaps better suited to a sophisticated investor is because the investors often have to fulfill certain requirements in order to be considered accredited/qualified. Hedge funds are also primarily run by a limited partnership, or a limited liability company, which places a money manager in charge of making decisions about investments made with the hedge fund.

For your average investor, a hedge fund would not be something they deal with, due to the fund’s complicated nature. For those with investment experience (and a lot of money to invest), hedge fund investments can be lucrative. A hedge fund has the benefit of being extremely versatile, and works in many ways like an entire portfolio; the money manager can choose to invest in a variety of different areas in order to maximize return under any market conditions. Hedge fund investments deal with more than just stocks, bonds and basic trading – hedge fund investments can be used to support startups, currency, and much more. Essentially, anywhere a money manager sees the opportunity to reap huge gains at little risk; a hedge fund investment may take place. This can involve either short or long positions. Hedge fund investments can be centered on one country, or can reach a global scale – it is up to the wisdom of the money manager to decide what market to engage in.

For the most part, most hedge funds are unregulated as many states do not require registration with the Securities and Exchange Commission. However, despite the “unregulated” status, the money managers (who are skilled investment professionals) are indeed required to adhere to the same market regulations as everyone else as they go about the business of managing the hedge fund portfolio. There is nothing illegal or dubious about hedge funds, when properly managed.

The term “hedge fund” refers in some cases to “hedging” against the market, or deliberately using techniques designed to reduce financial risk. In recent years, however, the “hedging” side of hedge funds (i.e., reducing risk as much as possible in terms of investment choices) has become rather fluid. Some money managers prefer to invest in volatile, fast-moving markets because the returns can be even more substantial.

Because of the many different financial techniques employed by hedge fund experts, there is no single definition or example of a hedge fund to be found. Some portfolios may reflect a cautious financial mind, and some may be far more adventurous. A good hedge fund manager will do their best to combine several strategies for making big returns at once, rather than relying on one method. Many hedge fund managers have an area of expertise and will focus on their field of skill. When entering into a hedge fund partnership as an investor, be sure to know exactly what the portfolio manager specializes in, and how much experience they have with hedge fund investments in total.