| Hedge Funds are a bit funny; you have to pay | | | | mutual funds, but at a much lower broker's |
| 3 to 4 percent for management fees and other | | | | fee. Look-alike funds mimic ETF's |
| fees, plus about 20 percent of the profit, | | | | relationship to mutual funds, by running |
| yet more and more people are crazy about | | | | profiles of the investment strategies of |
| them. For many years average hedge fund | | | | various hedge funds and mimicking them. Then |
| returns were 11 percent according to Business | | | | the broker fee is only 1 or 2 percent, and |
| Week, but now the returns have become lower | | | | there is no whopping 20 percent profit fee. |
| on the huge amounts invested in hedge funds. | | | | These look-alike funds are definitely around, |
| Maybe there is too much competition. Many | | | | and if you ask your broker about them or do a |
| smaller investors are involved in hedge funds | | | | few Google searches, you can get them. |
| through fund of fund groups, which require as | | | | Although hedge funds total about $1.5 |
| little as a $25,000 investment, as opposed to | | | | trillion in invested funds and mutual funds |
| a $1 million investment directly in a hedge | | | | total much more money, about $8 trillion, |
| fund. A fund of funds is a mutual fund that | | | | hedge funds have an increased weight because |
| invests in several different hedge funds. | | | | of their use of leverage. At a ten to one |
| This gives an opportunity for smaller | | | | ratios the effective investment power of the |
| investors, but the fees are higher, since | | | | hedge funds can be greater than mutual funds. |
| there's one more level of management to deal | | | | |
| with. Altogether there is believed to be $1.5 | | | | To tell you the truth, if you read the |
| trillion in hedge fund money in about 8,000 | | | | financial press, it is a bit of a mystery |
| different hedge funds. They are under | | | | what exactly the frenzied attraction to hedge |
| increasing pressure to be regulated after the | | | | funds actually is. They are invested in a |
| largest collapse of a hedge fund ever, the | | | | combination of derivatives, mergers and |
| Amaranth fund, which cost investors over $6 | | | | acquisitions, selling short and some murkier |
| billion. | | | | deals in the "deregulated universe". The |
| | | | danger is, as predicted by some soothsayers |
| The other big thing hitting the markets is | | | | in 2005, that some funds will over-leverage |
| look-alike hedge funds, sometimes called ARFs | | | | and take excessive risks and go bust. That is |
| (Absolute Returns Funds). These are similar | | | | exactly what happened to Amaranth hedge fund |
| to what ETFs, Exchange Traded Funds have been | | | | that had a $6 billion plus blowout on the oil |
| to mutual funds. ETFs are a basket of | | | | futures market. |
| securities that are often designed to mimic | | | | |