What's a hedge fund? | Marketplace Whiteboard

hi it's Patti her shop marketplace so

hedge funds I kind of like the biker

gangs of the investment world not

necessarily because they like to write

fast machines or they might have dubious

hygiene habits although that also may be

true it's because they're one percenters

right biker gangs like to say that

they're the 1% of the motorcycle club

community that doesn't obey the rules

well hedge funds happen to manage about

1% of all of the assets under management

in the US and because they are

unregulated it means they don't have to

obey some of the rules either now on the

surface of it they look a lot like

regular pension or mutual funds right

you know you go to investors you get a

bunch of money you invest that money in

certain securities and you make more

money well because they're unregulated

hedge funds have a lot more freedom than

these other funds kind of like

motorcycle gangs firstly they can buy

whatever the heck they like all right

not just stocks or bonds or whatever it

is they can buy fine art or fine wine or

rare earths or any other commodity

whatever they fancy secondly they can

invest in pretty much any way that they

like you know they can use derivatives

they can sell short they can and they do

use leverage which is where they go out

and they borrow vast amounts of money in

order to make their investments next

they can charge pretty much whatever

they want most hedge funds charge

investors who put money into their funds

2% of the money that comes in and then

they take 20% of any profits at the end

of the year

finally hedge funds can manage their

funds and pretty much whatever way they

like that includes locking the funds up

which means that investors can get their

money back before a certain period now

if all of this makes it signed like

investing in a hedge fund is kind of

risky well that's because it is risky

which is why the only people who can

invest in hedge funds are so-called

accredited or sophisticated investors

what does that mean we're basically

means they're wealthy and they also have

enough experience and savvy and know-how

to understand what it means to get into

bed with a bunch of outlaws which could

probably leave most of us rather badly

needing a drink