Why Do Hedge Fund Managers Make So Much?
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- čas přidán 25. 07. 2024
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Hedge fund managers are usually some of the highest-paid people in the world often earning hundreds of millions per year if not billions per year. When you take a look at their returns, however, it’s often not even higher than the S&P 500, so why are they paid so much? Well, the answer is that hedge funds aren’t exactly paid to beat the market. While beating the market is still a top priority for many managers, their true top goals are to minimize risk and maximize alpha. Alpha is a way to measure risk-adjusted returns and it lets you know if a given investment was worth the risk. An investment does not need to beat the market to have a positive alpha value. If the said investment has a low enough beta value, it could still produce a positive alpha. This video explains the inner workings of hedge funds, and why exactly hedge fund managers are paid so much money.
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Timestamps:
0:00 - Hedge Fund Managers
1:35 - Client Base
4:42 - Beta
7:21 - Alpha
9:25 - Compensation
Thumbnail Credits:
Aaron Kotowski Forbes
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Resources:
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Disclaimer:
This video is not a solicitation or personal financial advice. All investing involves risk. Please do your own research.
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Watch me become a hedge fund manager and just buy s&p
😂
Less Is More 💯
😂😂
I mean Ray Dalio’s fund bridgewater associates is mainly S&P
Hedge fund managers are generally compensated for the alpha they generate. Essentially, the returns they generate that are not explained by the market. It’s a decent strategy, but if your returns can be fully attributed to the performance of the market, your clients will probably pull out of your fund.
When you have 100 million your priority is not to be richer and get another 100 million but to stay rich.
Because there's basically no difference in the quality of life between having 100 or 200 million usd.
But you will feel the heat if you're suddenly only worth 10 million.
oh no, only $10 million what ever will they do.
@@KobeLoverTatum If you have debts and liabilities worth millions, then you will shit ur pants if you only had $10m left.
there is a huge difference between 100m and 200m.
You can afford to buy amazing things with the difference and improve the quality of your life
One Mistake is not doing enough research before investing in a stock, another Mistake is not diversifying your portfolio. Investing all your money in a single stock or sector can be risky, since if the stock performs poorly you will lose a significant amount of money. I’ve seen of people accruing over $650k during recessions
Sometimes, the strategies to stay on constant green in a downturn markets are quite rigorous for the regular-Joe. Matter of fact, they are most successfully carried out by experts who have had a great deal of skillset/knowledge of the market. Maybe you should hire one.
@@sherryie2 Agreed! I first contacted a Financial Analyst because these days, it's easy to buy into trending stocks, but the task is knowing when to sell or keep. That's where my manager comes in, to help me with entry and exit points in the industries I'm engaged in. I’m currently 60% up in profits just in 5months with my initial capital of $160k
@@rickertcoles Please can you leave the info on how to reach your investment advisor here? I’m in dire need for one.
@@flemmingbrooke Sure. NICOLE DESIREE SIMON, a well-known person in her field, is my advisor. I got to know her through my wife. It's my wife that has her number, but you could further investigate her credentials and contact her yourself.
@@rickertcoles Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.
This is the best video explaining the appeal of hedge funds to rich people. I always assumed that because they underperformed the market most of the time + they have high fees that most of the rich people that invest in these funds aren't really savy when it comes to paper assets. For example they got rich in a different field such as manufacturing, real estate, food industry etc. so they don't really want to delve into the details of funds and just say "hey, this is where other rich people put their money, might as well trust the experts" and just blindly invest money into whatever fancy hedge fund they come across.
Now, I understand the concept of capital preservation when it comes to managed funds. Not everything should be about gains.
Buffett's rule no. 1 and no. 2 of investing!
Yeah it seems they just want to maintain their wealth and not have to deal with ups and downs. This is good if they want to take their money out and put it in something else.
O oooooo
Can you not still do the same with index funds that have less equity and more safe bonds? Like the Vangaurd Lifestrategy?
@@NnamdiNw You can and should, but the rich people think that paying someone else to play the stock market will "do better", it's not true, but delusion is a powerful motivator.
why not go with safer investment if you want to preserve your wealth. hedge funds are still way riskier and its not true rich people wants to invest in hedge funds. Just think this way U r very rich guy u tend to be followed by big fund managers and hedge funds (they are basically your friends). Now when u talk about money, investments its obvious fund managers and hedge funds guys can easily lure u to invest in hedge funds.
Now market gives more return than hedge rich guys neither have time nor they care about that and they always go with the most trusted options (advice in their circle).
My father buys so much mutual funds every year from agent (basically giving so much money to agents) , now neither he knows about cost neither cares much and always go with the trusted advice in his circle.
Only thing is that we assume that everyone knows all that about finance and takes calculated decisions but thats not the case 99% people that dont belong to finance dont give it a much thought.
I keep loosing in real trade but win in Demo.
Should I give up on Trade?
What should I do?
How may I do better?
What I'm I doing incorrectly?
I HAVE INCURRED SO MUCH LOSSES TO TRADE ON MY OWN,I TRADE WELL ON DEMO BUT I THINK THE REAL MARKET IS MANIPULATED.
here is my problem I have been making losses trying to make trade. I thought to trade demo is just like the real..can anyone help me out or at least tell me on what to do.
having a mentor is also very important when it comes to Trade, with out that, it can be very frustrating.
you must have these things in mind
1. Have a long term mindset.
2. Be willing to take *risk*.
3. Be careful, if you're not spending to earn back, then stop spending.
4. Never claim to know - Ask questions and it's best you work with an assistant.
The wisest thought that is in everyone's minds today is to invest in different income flows that do not depend on the government, especially with the current economic crisis around the world. This is still a good time to invest in gold, silver and digital currencies (BTC, ETH. stock,silver and gold)
I wouldn't hedge against this video! So beautifully explained!
Thank you Gaurav!
You have a talent for explaining complex stuffs! This was the first time I actually understood someone talking about these concepts
Thank you Ash!
Loo l
The aim of hedge funds is to offer a different product compared to the market. The metric that actually a hedge fund offers is returns on a risk adjusted basis - Sharpe (or Sortino). That is to say, how much can you make per unit of risk. Thus it's aim is not to outperform the market on a % basis but on a Sharpe basis. If I can offer you 7% return with 1% vol, (Sharpe of 7) that is often far more appealing than 12% return (S&P500) with a 13% vol (0.95 Sharpe)
I think that is missing in the video as the objective of a HF
That´s a really good point bud, a point not a lot of people see but that is really important in this context
I often think the net returns are often neglected from the Sharpe ratio. Instead people seem to only consider the gross return per unit of risk. I reckon when you account for the management cost, that sharpe ratio might be affected.
@@NnamdiNw that fee doesnt really affect the ratio at all because it comes after the investment is done and after the gains have been collected. The risk in the market would be the same (which is the basis of the sharpe ratio)
This and overall market correlation. People/companies that invest in hedge funds usually have stock market investments and use hedge funds as an non-correlating asset.
I understood that easily. thanks
great video! very well explained. thank you
by having the FED, SEC and media in your back pocket, than initiate a campaign of aggresive shorting against a company, whilst you are building up your short position (which doesnt need to be declared to the SEC) than use the media to create bagholders. If you get caught keep the profits and pay the 50,000 dollar fine and keep the billions you made, extra points if you short with teachers pension (looking at you plotkin)
Oh my gosh I was a subscriber when you had less than 50k subs and I’m so happy to see how well it’s going!!
Thank you so much for your sustained support Cullen!
Starting early is the best way of getting ahead to build wealth, investing remains a priority. The stock market has plenty of opportunities to earn a decent payouts, with the right skills and proper understanding of how the market works.
I truly agree with you on that,
I must say crypto is the future and with the way Bitcoin is climbing so high it's really advisable for people to invest now.
Mrs Kamilla helped me recovered all I've lost trading by myself
Ever since I lost my job with the ministry, I have been surviving through my investment with her, am so glad I invested when I did. I’m earring $25k weekly with her
Investment is that tiny line that separates the rich from the poor.
Hedge funds managers have higher expenses than a simple mutual fund. These expenses include top end private jets, the best pharmaceuticals, private islands, and the most in demand women of the night (or men if you swing that way) with an age that has no minimum.
🤣🤣🤣 lmfao
They are pigs.
😂
Thats the biggest bullshit ive ever heard. Good one
🤭🤣😂😂😂😂😘😨😹
Love to see your videos again!! Do you have a schedule when you release them?
Yep, Monday Wednesday Friday 2 pm central time
Fantastic. I am a CFA Charterholder and yet this video lent a new perspective to my view on Hedge Fund. Thanks
I highly doubt you have your charter...but if you do you should give it back
@@MadeInChina700 Don’t quite understand why you would want me to give it back. You could of course check in the member’s directory of the CFA Institute. The name is mine as it appears here . Go figure.
@@abhishekbal399 Have you considered watching The Wolf of Wallstreet? That movie might be able to teach you about finance as well lol
@@MadeInChina700 idiot
veyr informative. thanks for this.
Great video !!
As always atleast it provide some aspects of hedge funds.
Thank you Jatin!
There's no way someone would accept a 2.5B salary unless they also had a giga-back-door Roth IRA
Hahaha
Buying stock of future winners and then holding after putting them in Roth IRA... Ta Da
This is what I asked myself months ago, because I searched the average returns of hedge fund and I found out that it is lower than the average market returns.
Hedge funds must achieve high sharpe ratio or sortino ratio. A hedge fund with high compounded returns but low sharpe ratio won't be able attract much clients.
There's nothing a hedge fund manager could do that any regular ass person couldn't. Put money safe places, take them out of dangerous places. Real hocus pocus magic there.
I sense sarcasm lol
the name of the channel is good bc it says "logically answered 3 days ago" .its cool
2:50 What website is this? can someone tell me please
Could you make videos on how the market works exactly? There's some concepts, like bonds, that I really don't quite understand. I might be alone in this tho idk
Thanks for the suggestion Tibo!
Im here too Buddy
MoneyWeek - On this channel you will get the video of how bonds market derivatives work they are 10 year old videos but completely relevant even today as theory/Basics does not change... so checkout that channel...👍
No, you're the only person in the whole world that doesn't understand that
@@shanginadildo nope
What kind of work...do they do for 100 to 120 years...when they fail to beat the market...
The reason they get paid a lot is straight forward, Managing money is really hard. Managing a lot of money is even harder. People with a lot of money will pay people a lot of money to manage their lot of money, if they are really good at it. So if you are really good at managing money, you can make a lot of money managing a lot of rich people’s money. But to reiterate. Managing it well is really hard. Like: playing in the NBA hard.
Your audio is noticeably lower than most videos. Every time I click on one of your videos. I have to increase my volume by about 15-20% and then decrease it once a video from someone else comes on.
The wisest thing that should be on everyone's mind currently should be. To invest in different streams of income that doesn't depend on government, especially with the current especially with the current economic crises around the world.
His trade execution quality and profiting is well structured with great financial features.
Working with Romero pieto is the best thing that can happen to a beginner trader who is aspiring to be fruitful out of the market he is trustworthy and straightforward we surely need more men like him in trading world.
Good good content.
Yes I'm a living testimony of Romero pieto his platform has also done a great thing for me.
I've seen so many review about this man called Romero pieto who is he ?
The service is sometimes potentially legitimate, especially for pension fund customers, insurance companies, and the like. However, the fees are unnecessarily high, and some of the funds are using non-public information to figure out what other investors are going to do, perhaps only a day or even a minute before they do it. These methods are not providing a useful service. They only squeeze drip drips of money from people's retirement savings or insurance reserves. Some funds allocate capital to more useful enterprises without burdening them with too much debt. Let's reward them and regulate the others.
I suppose my question is...how do you even become a hedge fund manager?
I think most hedge fund managers will start off in entry-level positions at a hedge fund and work their way up. You’d also need a bachelors degree (masters isn’t required, but is preferred) in Finance, Accounting, Business Admin. Obtain CFA, RIA, CHFR qualifications
such a great analysis of hedge funds . i personally know few millionaires who are into these funds and it works gr8t for them. i always use to debate this exact thing with my friends but couldn't really explain it from now i will just suggest them ur vdo.
BTW logically do u remember me?
with u since start
I actually noticed you bro
Thanks for watching Krish, and yes I do remember you!
@@LogicallyAnswered amazing channel bro
Keep doing your thing !!!!
Would be great to see the correlation of insider news and hedge fund performance. Don’t think its possible to beat the market consistently using technical and fundamental analysis alone in the modern world. Also similar for how independent the fund manager can be (from insider news) given the size of investments and their connections.
Well, they don’t usually beat the market hahahah :)
Tell that to Jim Simons
#kengriffenlied
@@LatenightNinja no cell , no sell
Look no further than Jim Simons.
Really i want this video thank u very much sir love u ❤
Glad to hear you liked the video Parveen!
Hedging is an art. you have no idea how many of them become broke overnight, if you don't have a extreme knowledge.
Thats because its one of the most risk-filled positions. And finance is all about - the higher the risk, the higher the remuneration.
You missed the entire point of the video. Hedge funds are uniquely low risk.
Skewness and kutrtosis are the next moments that must be taken into account when assesing risk adjusted return. Mean Variance 2D world does not tell you everything about the the risk of returns. Think os selling out of the money call or put. You would get alpapha, but the skewess and kurtosis of the protfilio has increased. Risk can not be eliminated, but only transfered and managed.
Why all top hedge funds only in USA and few are from UK. there are no hedge funds from Kazakstan China etc why
are you muslim?
Can a retail trader do hedging and if yes how
By buying derivatives with a strategy against your position. For example buying Tesla puts while owning Tesla stock
They keep the money safe, pay themselves after everyone gets their interest paid 🌟
Another thing about hedge funds is that they do not have to report their losses.
Hedge funds claim to be betting on both sides in case knowing they plan on shorting and longing stocks in a way that prints on both sides of the options play.
GameStonk oh yeah
Now , Majority of people search how to became a held fund manager
a video on parag agarwal would be amazing!
Thanks for the suggestion Sanskar!
Am back ,do a video for Trinidad and Tobago 🇹🇹
Incorrect data. Griffin is also the main shareholder.
Make a video on high frequency trading
Thanks for the suggestion Aditya!
what tool did you use to calculate the annual return at 2:36 of this video
www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
@@LogicallyAnswered this doesn't seem like the same tool. I'm not able to calculate IRR in the same way as the screenshot
Another concept to consider is affluent investors sometimes overweight hedge funds and underweight passive investments if analysts believe we are heading into a period where active investing will outperform passive investing. This is common during volatile times.
Most people can’t pay rent but some people are throwing around billions . The world is fucked, let’s see how this implodes.
Skipped over Preferential personal tax treatment on top of top of pay
- for HFMs. It makes a Yuuuge
difference!
Risk adjusted return
Wall Street definitely needs to be held more accountable and not sure it’s worth it!
How do*
Let's all become hedge fund managers. Buy companies on the cheap, sell off all their assets, lay off their employees, think short term only. When done, move on to the next company and repeat. Don't need a Harvard MBA to figure that out.
thats what corporate raider did in 80s
which is kind of illegal now
so i suppose you would need a harvard degree now
@@priyanshuchaudhary8555 They are doing it more today than in the 1980s. Buy a company, plunder its assets, move on when done. It's greed, greed and more greed
BUY AND HOLD!
But the hedge is very expensive not just 10% of your position
Why do hedge fund managers continue working after their first paycheck?
Well, it takes decades to get to such a position. And usually, they aren’t doing it for the money.
It’s the thrill of winning
@@LogicallyAnswered That's not true, respectfully. You can become a hedge fund manager the entrepreneurial way by building up your own track record and impressing people with it.
@Tony G The money is absolutely a part of the "Thrill" though, lets make that completely clear. Along with social benefits and feeling of self importance
4:17 Wait How your 1$ become 4/5 dollar stock just went 50% down.
So without Leverage your 1$ will become 1.5$. and 10 $ will become 5.5$ instead of 5$.
Isn't that Kenneth Cordele Griffin on the thumbnail, who is a known financial criminal that abused his wife?
Sometimes I really wondered how people make this huge profits investing on the stock market online, I agreed with you investing and earning is a legitimate way to gain financial freedom, but how is it done?
Wow am shocked someone mentioned and recommended Mr Jeff O'Reilly I thought am the only one trading with him.
Wow I just made my first withdrawal today, trading with Jeff O'Reilly
Indeed he is an expert
All thanks to my aunty who introduced him to me.
Who's this professional everyone is talking about, I always see his name at top comments on every CZcams video I watched.
The one who has power is right.
I'm the guy who doesn't think Wall Street needs to be held more accountable. I already know who is expected to hold them accountable, and I apply logic to the situation. I believe if our politicians were held accountable, Wall Street would not have ever been an issue.
I still left a like of course, because I'm not that savage.
Damn bro, that's amber huge
What ever he explained is CAPM.
Its not reliable but, check it out
Very simple answer: because our society and financial system are just sick enough to have this disparities. There is no logical reason for people making this much money and others just barely surviving. Greed and corporate diseases make this reality possible. Sadly, there is no room enough for this money in their coffins...
Maybe I’m an idiot but I still don’t get it. If the point is to minimize risk and capital preservation why not just not invest your money and hold cash, and if inflation is a concern why not just put your money into gold and silver. Or just buy the S&P500
Slow....
its time to end them......... lets do it....
Secret ingredient is crime
Nice
Thanks for watching Thomas!
So that rich investors can sleep well at night instead of worrying about their investments.
Ferrari# Lamborghini #Aston Martin & Movie Producers, Tom cruise # Taxation , Social security
it's not "income" dude.. it's all cap gains.
Citael hedge fund is very complex investment machine, you have to consider that every single day, Citadel invest over 500 billion with Huge gross leverage in almost all world markets: stock, furtures, bond, commodities, currencies, CDS, CDO and OTC market. Is literraly a huge huge powerhouse. And is not the single source of profit for griffin, there is another source, wich most people does not known: Citadel Securities
That’s not entirely true. Most of the money Ken Griffin makes is through naked shorting (which is illegal) companies into bankruptcy. They use swaps to hide their shorts. The most famous example is GameStop, at which they failed. The stock still is shorted over 200% per SEC report (so 100% more than there are shares of that company in existence). That’s how short squeezes happen. Btw Ken Griffin doesn’t only have a hedgefund but is also a Market Maker, which means there is a huge conflict of interest, since he can regulate the market and also profit off of it. They also use high frequency trading to make bets against you, as soon as you’re trying to buy something.
Major examples of companies that went into bankruptcy because of Ken Griffin and Citadel are Toys R Us or Blockbuster.
And it totally wasn't Amazon and Netflix who bankrupted Toys R Us and Blockbuster. Bad business model? No, it was totally just Kenny G.
You are not the smartest
Starting early is the best way of getting ahead to build wealth, investing remains a priority. The stock market/crypto market has plenty of opportunities to earn a decent payout even in a downtrend, with the right skills and proper understanding of how the market works.
Courage taught me: no matter how bad a crisis gets, any sound of investment will eventually pay off - Carlos Helu
You are so right. I know because my advisor is able to find so many good plays. My portfolio literally went from $300k to $1.1m last year (not counting withdrawals I made) all really exciting. I guess it’s the experience and better judgement.
@@kristineweber7521 Hey! Please who is this advisor of yours? I guess success really means total knowledge and I hope he/she can help me get back what I lost. Can I have an easy access to reach out?
Access to good information is what we investors needs to progress financially and generally in life. here's a good one and I am grateful.
@@kristineweber7521 Are her service available outside of the US? as her broker is registered in the US.
Dude on thumbnail makes billions from CRIME!!
Dude in the thumbnail is what Putin would look like if he was Anglo saxon.
Please do bonds next?
Also, how much did the hedge funds pay you to say this? 🤣
Lmao, do you really think they would pay me hahaha?
The concept of hedging makes sense to people whose wealth is tied to couple of companies (Bezos, musk, Cuban ,etc.). It will doesn't make sense to a multi millionaire. They can invest their discretionary income in S&P and get return. So I don't understand why there are so many hedge funds catering to maybe 1000 billionaires.
as someone who works in Private Equity, yea it's something more so along the lines of: A lot of millionaires are looking to diversify their assets and mitigate losses EVEN if on paper it makes more sense to dump everything into S&P... a lot of times they want security > profit. And then those who want profit want x amount in one area just so they dont have all their eggs in one basket. Also with owning a hedge fund comes great power and boasting rights. So most of the time these firms are actually not profit positive and are breaking even, but they just do it for the ties and connections they make.
you kind of answered your own question a bit: 1000 billionaires are at least worth 1 trillion. In reality the richest 1000 billionaires are worth a lot more than that. So its a big market to cater to, on top of what @jim bob said
Thank you-aa for-aa making-aa this-aa video-uhh
Funny thing I was thinking about it
Basically they are high tier gamblers
Ken Griffin did not take that money from his hedge fund business alone. You are forgetting that he has major equity in one of the biggest market maker out there i.e. Citadel. So what you are quoting is actually misleading.
cause the world is not fair:)
Another banger Hari!!! Hey, can I make a request? How about something on high frequency trading? I feel like it's not talked about much these days, and while I know a bit about it...a video with you at the helm with your amazing research skills would be awesome!
Thank you so much man! And I appreciate the video suggestion!
@@LogicallyAnswered for sure buddy! If the username doesn't look familiar, I'm Justin Pierce...I just changed it bc just having my real name out there was starting to seem a bit much 🤣
Operated these funds just but your 100 million in the S&P and don't look at it you'll fare much better.
Mayonnaise boy Kenny G
Any other aspiring quantitative hedge fund managers in the comments?
In other words, do you have the balls for it.. Because it takes a certain type of someone to do what these guys do
Look at the fees
Well, if you are really good at delivering 120% to 200% returns, for each of the past 4 years, you find that there are quite a lot of people who would like to invest their savings with you, and that adds up pretty quickly.
Crazy how much useless work is being done and how much money it takes to pay these people. IT's not going into anything usefull, it's just gambling and getting paid for it. The whole system needs to change.
0:45 did he grow up?
They should be paid based on fund performance.
I don't care what they do, I just want some of the profit from their shenanigans too..........
Big Short CDO Manager says to Mark Baum: Society values me very much.
How much does society value teachers, nurses and garbage collectors? Not very much.
How much value do hedge fund managers bring to society?
How much value to teachers, nurses and garbage collectors bring to society?
Can society function without teachers, nurses or garbage collectors?
Can society function without hedge fund managers?
if you are not making money as passive, then you are living poor..... salary is not the sign of success
They are highly paid but their performance is inferior to index.
Yes
@@LogicallyAnswered not all though
Hedge funds which are mainly trading provide 20 % of returns per year Which is a lie, trading itself can bring more than 500 % per year, of course hedge funds want to keep the profits for themselves delivering only 20 % of the returns to the customer
Lol when u make money some is losing its impossible according your calculation
you didnt understand the video. hedge funds are trying to minimise risk not have 500% growth