INVESTMENT MANAGEMENT & HEDGE FUNDS
Investment management (also known as Asset Mgmt, Fund Mgmt or Money Management) describes the business of managing savings by investing them in various securities and assets to provide returns to investors. Investment management companies in the US control over $9 trillion in assets. Of this, approximately $8 trillion is held by 8,300 mutual funds, and the rest by closed end and exchange traded funds. Hedge funds (which are largely unregistered) control close to $1 trillion in assets through 7,000 hedge funds. George Soros (Soros), Julian Robertson (Tiger) are famous names. Steve Feinberg, Cereberus, the world?s largest hedge fund has control over more revenues than Coke or Exxon Mobil. The rest of the Investment Management industry also has famous superstars including the legendary superstars – Peter Lynch (Manager of Fidelity) and John Bogle (Founder and CEO of Vanguard).
Capital is increasingly becoming global as investors are looking to various parts of the world to diversify their investments. The flow of money around the world is also becoming much easier given the easier convertibility of various currencies into one another, a more global workforce, and much improved financial instruments that allow this flow of money (technology clearly has an important role in this trend). A Partner at a top fund recently said that America?s biggest export is fast becoming capital, not goods or services. Investment vehicles known as hedge funds have resulted in a significant move into the sector of both people and capital. Hedge funds have arrived in very large numbers as increasingly wealthy and sophisticated investors look to generate absolute returns that are uncorrelated to broader market returns. This is a sector that is fraught with risk due to the unregulated nature of the industry, and high profile bankruptcies and meltdowns. Hedge funds use aggressive strategies that are not allowed for most mutual funds.
This allows them to raise the risk profile and the rewards. Hedging strategies tries to reduce the rewards within predictable outcomes. Only accredited investors with $250,000 in income and net worth of over $1 million are allowed to invest in hedge funds.
Hedge funds receive 1-2% management fees, and 20% of the profits. This structure is similar to the PE and VC industry. However, some Hedge Fund managers with outstanding records keep up to 40% of the profits. When there are three partners running a $5 billion fund that makes a 40% profit in a year, that?s $300 million per partner. No wonder experts from so many different fields have ended up in Hedge Funds ? Nobel Prize winners, Research Analysts, Mutual Fund managers, Private Equity and Hedge Fund managers.