A performance fee is a percentage of the profits earned by the fund - this is typically around 20%. However, some hedge funds have performance-based management fees that are only paid if the fund meets certain targets. It is a fee that is generated whether the fund performs well or not. It covers the daily expenses and overheads of the fund and is designed to compensate the management team for their time and expertise in managing the fund’s investments. A management fee is normally a percentage of assets under management ( AUM) and tends to be around 2%. There are a few key features that may help in understanding hedge funds.Ĭlients: Hedge funds tend to be tailored for institutional investors such as pension funds and insurance companies as well as high-net worth individuals.įees: Hedge funds would typically charge its clients a management or a performance fee, or both. In a typical hedge fund investment, once an investor relinquishes their capital, the investor can not get their capital back immediately, it is “locked up”, and refers to a period following the date of investment and can last for between one to three years. Hedge fund investment strategies range from long/short to short-only, merger arbitrage, and many more. There are different types of hedge funds, including global-macro, equity, relative value and activist hedge funds. Key f eatures of a hedge fund are initial investment capital, manager and performance fees and a lock-up- period. A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers.
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