How many investors can be in a hedge fund?
A 3(c)(1) hedge fund can have up to 99 investors. Generally these investors will need to be “accredited investors” although some funds will choose to have up to 35 non-accredited investors.
The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.
It is not uncommon for a hedge fund to require at least $100,000 or even as much as $1 million to participate. Unlike mutual funds, hedge funds avoid many of the regulations and requirements within the Securities Act of 1933.
| Size | AuM | Total Number of Funds |
|---|---|---|
| Small | US$10-100m (average US$37m) | 4,654 |
| Mid-sized | US$101-500m (average US$232m) | 2,004 |
| Large | >US$500m (average US$693m) | 787 |
| Super-large | 10 largest hedge funds (average US$7,721m) | 10 |
To keep it simple, you can think of a hedge fund as a private mutual fund available only to wealthy people. Structurally, most American hedge funds are limited partnerships, and the investors are limited partners.
While there is no explicit investor limitation in Section 3(c)(7) (such as the 100 beneficial owner limitation found in Section 3(c)(1)), in order for a 3(c)(7) fund to avoid being considered a "reporting company" under relevant U.S. securities laws, it should have no more than 499 investors.
Despite the massive size of some funds, the world's average hedge fund size, in terms of assets under management, lies in the low nine-digit area.
Yes, you could start with much less capital, or go through a hedge fund incubator, or use a “friends and family” approach, or target only high-net-worth individuals.
The hedge fund is typically set up as either a limited partnership (LP) or limited liability corporation (LLC). In comparison, a general investment manager can set up any type of business structure that meets the needs of the investment manager.
While ZipRecruiter is seeing salaries as high as $242,849 and as low as $32,804, the majority of salaries within the Hedge Fund jobs category currently range between $66,587 (25th percentile) to $117,017 (75th percentile) with top earners (90th percentile) making $165,000 annually in California.
What is the ROI of a hedge fund?
Most hedge and private equity funds target a net IRR of 15% for their investors (after fees). This provides their investors with a meaningful premium over historical average stock market returns of 8%.
First, the hedge fund mortality rate in this sample is estimated at 8.43 per cent per year which is twice the size of those reported in mutual fund studies. We find that 59 per cent of hedge funds at the start of the sample do not survive the full sample period.
Bridgewater Associates
Westport, Conn. Westport, Conn. In 1975, Bridgewater Associates was founded by Ray Dalio in his Manhattan apartment. Today Bridgewater is the largest hedge fund in the world and Dalio has a personal fortune of approximately $19 billion.
Starting a hedge fund is a lot of work. It'll take a lot of your own time and money just to get things set up, and then you have to do the real work of getting others to invest with you and investing their money. The payoff could be substantial, but you could also end up wasting a lot of time and money.
You generally must be an accredited investor, which means having a minimum level of income or assets, to invest in hedge funds. Typical investors include institutional investors, such as pension funds and insurance companies, and wealthy individuals.
BlackRock manages US$38bn across a broad range of hedge fund strategies. With over 20 years of proven experience, the depth and breadth of our platform has evolved into a comprehensive toolkit of 30+ strategies.
The Investment Company Act of 1940 (the 1940 Act) provides a few exemptions, one of which is Section 3(c)(1).[2] Section 3(c)(1) exempts any private issuer whose outstanding securities are beneficially owned by no more than one hundred persons.[3] The 1940 Act defines “person” as “a natural person or a company,” and “a ...
Therefore, an investor in a hedge fund is commonly regarded as an accredited investor. This means that they meet a required minimum level of income or assets. Typical investors are institutional investors, such as pension funds and insurance companies, and wealthy individuals.
Typically, minimum investment levels reach anywhere from $100,000 to millions of dollars for the biggest hedge funds.
Reality Check: S&P 500 Outperforms Hedge Funds 🚀
Data shows that hedge funds consistently underperformed the S&P 500 every year since 2011. The average annual return for hedge funds was about 4.956%, while the S&P 500 averaged 14.4%.
Is Berkshire Hathaway a hedge fund?
No, Warren Buffett does not have a traditional hedge fund. His company, Berkshire Hathaway, operates more like a holding company that invests in stocks and entire companies for the long term.
Citadel, which ranked second in 2023, made $8.1 billion in profits after bringing in a record-breaking $16 billion in 2022. Its $74 billion in gains since inception rank it as the most successful hedge fund in history.
Key Takeaways
Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM). Funds typically receive a flat fee plus a percentage of positive returns that exceed some benchmark or hurdle rate.
Typically, the manager of the hedge fund is compensated with a fee based on 2% of the gross assets of the fund, and a profits interest entitling the manager (or, more typically, its affiliated general partner) to 20% of the fund's return (subject, in many cases, to minimum guaranteed returns for the limited partners).
Hedge fund management firms are often owned by their portfolio managers, who are therefore entitled to any profits that the business makes. As management fees are intended to cover the firm's operating costs, performance fees (and any excess management fees) are generally distributed to the firm's owners as profits.
