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Current time:0:00Total duration:3:32

Video transcript

in this video I want to get see if we can understand the idea of a hedge fund a little bit better and these tend to be pretty mysterious and sometimes get a bad name because some hedge funds do do some fairly strange things and and secretive things in the markets of people are rightfully so suspicious of many of them but the real difference between a hedge fund and the types of mutual funds that we just talked about are that they're not regulated by the SEC not regulated not regulated by SEC and because they are not regulated they can't market themselves they can't market that's why when you watch when you watch a financial shows or you get a magazine of Finance magazine you will not see ads for hedge funds the mutual funds are all over the place marketing them left and right hedge funds the most the largest hedge funds in the world are definitely not even household names no one very few people even know what the what those largest hedge funds in the world are and that's because they can't market themselves no matter how good of a track record or really how reasonable of a fund they might be some might not be reasonable some are they can't market themselves and they also can't take money from the public can't take money from the public so in general in order to invest in a hedge fund you have to be an accredited investor which means you have a certain net worth or maybe you have a certain income or maybe by virtue of your education you can prove that you have a certain level of sophistication to invest in these things that aren't regulated you I guess don't need the SEC to to watch your back and the so the regulation is a key difference marketing no money from the public and then the other key difference is how the managers tend to be incented I know incense incent it's not a word or motivated in the mutual fund world managers get a percent of assets so for a mutual fund manager larger is better the more under management the more money the mutual fund manager is going to make so that you really just want to keep marketing and marketing marketing it they don't get a cut of the profit so really there's not a lot of incentive to to try to make kind of really beat the mark because if they if they kind of don't beat the market one year then all of a sudden they're you know their fund will shrink so they really just get a fee on the size of the fund and a hedge fund and then usually the implication is that a hedge fund will be more actively managed they'll get a larger management fee so usually so larger larger management fee management fee instead of the 1% 1% is actually a lot for a mutual fund instead of that hedge funds tend to be 1 to 2% so 1 to 2% management fee and sometimes even larger than that but they even I guess bigger difference and this is where hedge funds are very different from a traditional mutual fund is that the management company the general partner gets a percentage of the profits so a hedge fund manager or the management company the tent the going rate tends to be about 20 percent 20 percent of the profits of the profits of the fund sometimes it's less sometimes it's a lot more some very successful hedge funds get 25 30 % or even a larger percentage of the profits so with that out of the way in the next video I'm going to do some different mechanics of essentially the same returns but one buy a hedge fund and then one by a traditional mutual fund