Anyone care to take the time and explain what these are or link me to an article?

 

http://en.wikipedia.org/wiki/Hedge_fund

well, unless you have a million dollars, most reputable Hedge Fund companies won't even look at you.

In simple terms, hedge fund = more risk. But there are quite a few good companies invest both in risky stocks and long time bonds to offset loss.

 

Sheesh. Where to begin?

http://www.investopedia.com/articles/03/112603.asp

Many different strategies, many different risk-return profiles. About 8,000 HFs out there running over $1 trillion. However, I'd say the 100 or so biggest ones run about 35-40% of that total. To be honest, many HFs out there have no real idea what they are doing and rely mostly on "beta" (market direction) or short-term momentum plays for returns. The good ones are in an inefficient space (the so-called "edge") or subscribe to strategies that provide discernible "value" in acquiring, processing, and reacting to information.

I currently work at a smaller HF in midtown Manhattan that is doing quite well. If you want to invest in HFs but don't have the $$$, I guess the best way is to work for one and become an equity partner (i.e. at my firm, there is no "minimum" for employees who want to put their money into the fund). Nice perk.

 

Hedge Funds May Be Worth Less Than You Think: Matthew Lynn
2005-10-12 19:06 (New York)


(Commentary. Matthew Lynn is a Bloomberg News columnist. The
opinions expressed are his own.)

By Matthew Lynn
Oct. 13 (Bloomberg) -- There is no quicker way to make lots
of money than starting a hedge fund, right?
Wrong. Hedge funds may not be worth as much as you think.
The evidence from the two listed hedge fund operators in
London -- including Man Group Plc and Rab Capital Plc -- is that
even though such investments are good ways to boost income, they
aren't generating great returns for the managers. You might be
better off going into, say, plumbing supplies, or Internet poker,
both of which may have better growth prospects.
In effect, the market is saying the hedge fund industry has
little growth left in it.
``The market doesn't put much of a premium on hedge fund
profits,'' said Tim Price, senior investment strategist at
Ansbacher & Co. in London, in a telephone interview. ``The quality-
of-earnings issue is paramount.''
The hedge fund industry has exploded in recent years. It had
an estimated $1.03 trillion in funds under management in the
second quarter, according to Chicago-based Hedge Fund Research
Inc. Big names are still drifting across from mainstream
investment banking into hedge funds. Only last month, for example,
Pequot Capital Management Inc., a U.S. hedge fund, said Byron
Wien, Morgan Stanley's senior stock market strategist, would join
as chief investment strategist.

$1 Billion

No one would doubt that the founders of those companies are
making a lot of money, mainly through paying themselves huge
dividends and salaries. Edward Lampert, chairman of Greenwich,
Connecticut-based ESL Investments Inc., earned $1 billion last
year, more than any other hedge fund manager, while the average
earnings for the top 25 executives in his industry rose 21 percent
to $251 million, according to Institutional Investor's Alpha
magazine. That sounds like more than enough to get you out of bed
on a Monday morning.
The mystery is why companies that are making enough money to
pay $250 million-plus salaries don't want to list their shares.
It is clearly not because they don't have the cash flow. Nor
can it be because their owners aren't interested in making money -
- why else would you start a hedge fund?
The hedge fund frenzy is often compared to the dot-com boom
of the late 1990s, and with good reason: Both have attracted lots
of clever young entrepreneurs, intent on getting rich fast. There
is a key difference, however. While the dot-com managers created
lots of quoted companies that had little revenue, the hedge fund
industry has done the opposite. It has come up with companies that
have plenty of revenue, yet very few of them are quoted. Whereas
the Internet entrepreneurs created capital, not income, the hedge
funds create income, yet very little capital.

P/E Ratios

Why's that? There is a clue in London. Its two quoted hedge
funds have been denied market endorsement. Two companies may be a
small sample, but since they are the only two quoted hedge fund
companies, there isn't anything else to go on.
Man Group trades at a historic price-earnings ratio of 14,
according to Bloomberg data, and a prospective ratio of 11. By
comparison, Amvescap Plc, a large U.K. money manager, trades at a
prospective P/E ratio of 17 and Aberdeen Asset Management Plc is
at 21. So the market is telling us that each pound or dollar Man
Group earns is less valuable in relative terms.
Rather surprisingly, plumbing supplies may be a better
business to be in than hedge funds. Wolseley Plc, a U.K. plumbing
distributor, trades on a prospective P/E ratio of 12, slightly
more than Man Group.
Likewise, RAB Capital, whose current P/E ratio is 16 and
whose forward ratio is 13. The company more than doubled its
profit in the first half and increased management fees by 41
percent. Yet it is still valued as if it were an average business.
For example, the FTSE 100 index had an average P/E ratio of 20 in
the week through Oct. 7.

20 Percent Fees

There is a straightforward explanation for that. The
relatively low price put on the hedge fund companies says two
things. First, the rapid growth rates of the industry probably
won't last. Next, the 20 percent performance fee that hedge funds
typically charge can't last, either. In effect, the business model
the hedge funds have created won't work much longer.
``In times past we have argued that Man Group's hedge fund
business deserves to trade in the midst of the trading range for
traditional asset managers of 15 times earnings per share to 20
times earnings per share,'' Credit Suisse First Boston said in a
recent note on Man Group. ``Increasingly we believe that the
market is unlikely to ascribe such a valuation to Man Group, given
high fee structures and the concerns over their longer-term
sustainability.''

`Drop in the Ocean'

There are plenty of worries about hedge funds. The
performance fees may eventually have to come down. And most of the
firms are dependent on a handful of talented individuals.
Were they to walk out the door, the companies they work for
would be less valuable. Maybe that is why the market doesn't trust
them. A company such as ESL wouldn't be worth much without
Lampert.
That may not mean there isn't some growth left in the
industry. ``The market is assuming that the flood of money into
hedge funds is going to slow down,'' Price said. ``I'm not sure
that is the case. It is still just a drop in the ocean of the
total asset management industry.''
Right now, that isn't what the market is telling us.
That explains why very few hedge funds have gone public, even
though they've generated huge profits. If there is one thing hedge
fund managers are good at, it is spotting undervalued assets, all
the more so when the asset in question is their own company.
And until the market changes its mind about hedge funds, none
of the companies will follow the lead of Man Group and Rab Capital
and list their shares. If the market won't put a fair price on
them, why should they go public?

source: bloomberg.com