Hedge Funds Explained - Are They Evil or Just Incompetent?

Hedge funds are frequently depicted as the bad boys of investing but is this true? In "Hedge Funds Explained" I look at how hedge funds make money, who can invest in them and what kind of returns they have been generating recently to see if there is any justification for the very high fees they charge.


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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.

00:00 Introduction
00:28 What Is A Hedge Fund?
01:04 Who Can Invest?
01:41 How Much Do They Charge?
02:52 How Do They Invest?
05:38 Hedge Fund Strategies
07:54 What Can Go Wrong?
09:00 How Well Do Hedge Funds Perform?

#HedgeFunds #Investing #PensionCraft

[matteo-cuuv]

Why do people invest in hedge funds when they have underperformed in the last 15yrs? A big reason is they are very good at marketing and IR. Wealthy investors love to give their money to HF bcos it's exclusive and they feel lucky to be able to invest. Having money in a HF gives you major bragging rights, it means you are very rich, and there is this ( very often mistaken) assumption that you are part of the smart money. Maddoff leveraged this belief to the max

[lykskcr]

The graph shows the average hedge funds return were higher since 1999 but this is not the return that investors see. I would be interested to see the hedge fund vs S&P 500 graph after fees have been taken in to account

[iah]

Since we can't invest in the aggregate, choosing a hedge fund seems more comparable to picking a stock rather than an etf. Potential to massively out/underperform

[MikesGlitch]

I always thought the point of hedge funds was to "hedge" against the equity market, not necessarily to beat indexes. So if the equity market were to suffer a big crash and I was invested in a hedge fund I'd expect the hedge fund to give me a better return than the indexes.

[springwater]

Three questions:
1. The line chart comparison actually seems to show the hedge fund index is less volatile than the market. So one may argue hedge funds outperformed in risk adjusted returns.
2. The comparison may not be fair as we are comparing returns of different asset types. Hedge fund return could be diluted by fixed income and non-US equities, solely because the clients wanted exposures in those areas.
3. The macro environment in the last 20 years has not changed much. It's a secular growth led by QE, with foreign markets underperforming. Even if the performance are comparable, it only shows the market has performed better in this particular environment.

Nevertheless, the fees do look high.

[talbotsunbeamer]

Thanks Ramin. I think a bit concern for retail investors is how hedge funds often look to manipulate and deceive. Take Jim Cramer's infamous interview, in which he openly admits to moving stock prices in pre-trading hours and other dubious strategies. That fuels the 'us against them' viewpoint so it's good to see they're charging the earth whilst under-performing.

[blackbaron]

It's often the case that when things go wrong it's down to incompetence rather than anything deliberate (evil).

[CaseyBurnsInvesting]

Hedge Funds are mostly a waste of your money when compared to the indexes.

[Ganok]

Thank you for the video! Not sure if its relevant to the topic, but it would be interesting to also do a followup video on how does private equity fit into the "accredited investor" landscape. Do insititutional investors consider hedge funds and private equity as distinct strategies / classes, or is the line between the two blured too much to be distinguished?

[donfalcon]

Brilliant video yet again! BS free analysis as usual!

[keithchegwin]

My brother-in-law was a hedge fund manager, I asked him if he used to beat the market. He seemed angry that I asked him and changed the topic of the conversation. I'm guessing he didn't lol 🤣

[TDZPearson]

It's not that WSB and Superstonk consider shorting morally wrong. It's shorting 140% of the float using dark pools thats morally wrong.

[Matt-gfgd]

I don't think they're "incompetent" so much as too smart for their own good in an equity environment that stopped making sense a long time ago.

[martinschneider]

your videos are simply the best out there. thank you

[nickdoyle-achievefinancial]

It would take a REALLY good hedge fund manager to overcome the fee structure and match an index. Unless your goal is something different, it seems foolish to gamble on picking that manager. I agree @ shorting. Nothing wrong with it.

[kekwirsching]

Thanks Sir. How are they taxed with all the trading and selling they do? Their capital gains taxes must be absurd

[apothe]

How are Hedge funds not market manipulation?

[feleciawallace]

It seems the stock market has become very corrupted and devoid of meaningful accurate honest metrics, devious manipulation is all that guides the direction of stocks. Forget about growth and performance of corporations, these indicators are now useless in this age of meme frenzy trading the market. How can investors trust where their hard earned money is allocated, is it gambling where you place your bets with blindfolds and hold your breath, then pray for the best?

It all stinks as we've leaned over the years (high-fees) Mutual Funds to include Hedge Funds are not our friends, we have learned to do the job ourselves if we want to earn profits on equity investments.

[bounchofbeaners]

hedge funds are out dated.if.just hire your own investors.

[peterbarrett]

For people who trust other people with their money. I also don't know people rich enough to do this