I keep seeing astronomical earnings figures next to hedge fund managers names and I was wondering whats the difference if any from any other fund manager?

It is a private, largely unregulated, investment that can play in both the public and private markets. It may invest both long (buying) and/or short (borrowing shares to sell first, in hopes of a decline, when it then will buy or 'cover' the short), thereby making a profit in a declining market. Minimum investments ae quite high, as are net worth reuirements. The investor is largely blind to the investments. Management fees are typically 1.5% to 3%. Managers are also entitled to keep 20% of profits.... nice gig in a good year. But they get nothing but the mgt fee in a losing year, nor do they share in ensuing gains until they get back to the 'high water' mark.

Thanks Ross!

yeah, ross beat me to it.

largely unregulated pools of money that can invest in ANY privately owned or publicly traded (exchange, other the counter, or otherwise) asset class via both long (buy) and short (borrow and sell) positions. hedge funds tend to borrow a lot of money to amplify returns (or, blow up :hihi: ).

compare with your typical IRA/retirement fund or mutual fund - they are restricted by law as to what they can do - they can only buy certain kinds of investments (cash, stocks, bonds) and can't borrow.

warren buffet thinks hedge funds are all a scam, because they are vehicles that are designed to enrich the guys running them. few actually earn their keep (i.e., outperform relevant benchmarks) after fees (3/20 as Ross said).

they pay well...a guy two years out of school (MBA) after getting some buy-side experience can pull in $600K/year at a place like SAC Capital (but you have to put up with long hours and a lot of verbal and psychological abuse from higher up). after that, the sky's the limit when you start running your own money. according to Trader Magazine, some guys like T. Boone Pickens of Mesa Partners earn up to $2 billion.

there's too damn many of them ... running about $1 trillion of money.

there's going to be some ugly consolidation as the dollar asset inflation of 2003-2007 winds down and fund underperformance continues.

not sure i'd want to work at a place like this: :hihi:


Details Emerge in SAC Capital Sex Harassment Case
SAC CAPITAL LAWSUIT
By Charles Gasparino
CNBC
| 10 Oct 2007 | 02:45 PM ET

Sexual harassment cases are nothing new on Wall Street, but CNBC has uncovered new details of one of the most salacious cases to hit a big trading house in a long time.

The case involves a sexual harassment lawsuit filed by a Andrew Z. Tong, a former junior trader at SAC Capital, the powerful Greenwich, Conn., hedge fund, against one of SAC’s top producers, a trader named Ping Jiang.

A New York State judge has sealed the case and sent the lawsuit into arbitration, where both sides would battle it out in private. He even cancelled oral arguments that were scheduled for Thursday following an appeal by Tong’s lawyers, who want the case to remain in state court.

The judge said he sealed the details of Tong’s allegations contained in the lawsuit because it is not in the public interest to disclose the salacious nature of the complaints. CNBC has learned the suit includes the following allegations made by Tong against Jiang:

# After being hired at SAC, Tong alleges that Jiang came to him and told him he had a trading method in which his traders must not be too aggressive; that traders must be more effeminate and to do so, he directed Tong to begin taking female hormones.

# Tong says he then took the female hormones that he bought on the black market.

# Tong then alleges he suffered emotional and physical distress. The hormones, he says, caused him to begin wearing women's clothes. He also could not perform sexually with his wife, who wanted to have a baby.

# Tong says the sexual harassment included sexual relations between the two men. :rotfl:

Tong's attorney had no comment.

SAC Capital and Jiang vehemently denying the charges, saying in a statement that: “SAC conducted a thorough investigation and found these scurrilous accusations to be false. We will vigorously defend ourselves and are confident that these claims will be swiftly rejected in arbitration.”

Tong was terminated by SAC Capital in April 2006 after working there less than a year. SAC, according to people close to the firm, say he was fired for cause. Tong, according to others, claim he was forced out of the firm.

They pay very, very little in income tax.

They pay very, very little in income tax.

the taxes of hedge funds are (rightfully) paid by the people who invest in them. like you pay your own capital gains and income taxes in your mutual funds.

you're getting confused with the private equity guys (folks who exclusively invest in businesses - usually privately owned).

I've heard that return on interest portion of a manager's pay is considered capital gains (not wages) and as such, taxed at the lower capital gains rate.

I've heard that return on interest portion of a manager's pay is considered capital gains (not wages) and as such, taxed at the lower capital gains rate.

yes and no.

to the extent that managers are investing their own money (which they do), they book gains on said investment as capital gains. more often, they are short-term (gains realized less than one year holding period ... most hedge funds are quick flippers), so the gains are taxed as REGULAR INCOME.

the performance fees (3% base and 20% on profits) that are earned by the hedge fund entity, which can be a partnership or corporation, flow through the partnership or corporation and are taxed accordingly at the partner or corporate level (corporations get to deduct expenses, like payroll, rent, etc). remember this inflow gets taxed AGAIN when other employees are paid.

Yes, the "carry" portion, the money they earn on the fund's performance, the way I understood it, that was considered a capital gain. But, hey, I sell lures.

Sounds a wee bit on the slimey side..............thanks for all the input.