Hedge Funds are private investment agreements which are largely unregulated. They are actively managed funds that use many powerful management techniques; they aggressively pursue high revenue transactions. Hedge fund managers are among the highest earners in the investment field. A significant number have experienced earnings above $3 billion per year. Pay for hedge fund managers includes a basic fee of two to four percent of asset value, and they receive a performance-based bonus. Because there are significant risks associated with hedge fund investing, participants in hedge funds must be accredited. Hedge funds can operate in particular sectors such as health or insurance. They can focus on a narrow range of investments such as high growth stocks.
Recovering from the Crash
Before the crash in 2008, world-wide surveys of hedge fund assets estimated a total of $2.697 Trillion, and this was considered an all-time high investment level. In 2014, hedge funds completed the journey towards regaining market shares and established new highs. According to estimates from HedgeFund Intelligence, hedge funds have exceeded the 2008 records. With assets estimated at $2.869 Trillion, hedge funds have established new highs. The name hedge funds originally described the practice of hedging investment risks by taking cautious steps aimed at balancing events and economic shifts. Today investors seek out hedge funds for the opposite traits; they actively pursue risk-filled challenges to make outstanding profits and superior returns when compared to the overall investment market.
Surveying the Field
Based upon surveys of Americas-based firms, some data and patterns emerge. In 2014, some reports estimate that there are approximately 300 firms managing hedge fund strategies with assets in excess of $1 billion. The estimated total of assets under hedge fund management in 2014 is nearly $1.75 Trillion. The trends are all positive relative to 2013 estimates, and there are more active hedge funds and assets under management.
The Top Five Hedge Funds
The top fund in the Americas in terms of size is Bridgewater Associates with hedge fund assets of 93.7 Billion and a 12-month growth rate of approximately 14.5 percent. The second ranking firm is J.P. Morgan Asset Management holding some $64 Billion and boasting a 12-month growth trend of nearly 24 percent. Third is Och-Ziff Capital Management with assets of $45 Billion and a 34 percent 12-month growth rate. BlackRock is fourth showing $34 Billion under hedge fund management and a twelve-month growth rate of 19 percent. Fifth is AQR Capital Management with 31.6 Billion under hedge fund management and a 12-month growth rate of 30.58%. Assessing the top hedge funds is not an easy task since the essence of the business is private, and not reported beyond the scope of investor information and offering memoranda. The best data comes in the form of practiced estimates from well-qualified observers that pour over the visible signs of hedge find activity.
Hedge funds are not available at retail. Securities rules do not permit marketing them to the general public. Investors must make a large initial investment, and they must commit to leaving the investment in the fund for a substantial amount of time. To qualify, investors must be high net worth individuals and experienced investors. Similarly, institutional investors must have substantial assets and have independent investment advice.
At various times, institutional investors have moved substantial amounts into hedge funds. These have included membership organizations such as labor unions, public employee pension funds, and professional associations. Recently CalPERS, the California public employee retirement system withdrew $4 billion from hedge fund participation. Notable for the size of the withdrawal, the issue was not over performance, but rather about diversification. The pension fund retained its activists hedge fund managers.