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The Hedge Fund Book: A Training Manual for Professionals and Capital-Raising Executives by RICHARD C. WILSON

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Chapter 9

Frequently Asked Hedge Fund Questions

You are your greatest asset. Put your time, effort, and money into training, grooming, and encouraging your greatest asset.

—Tom Hopkins

This chapter covers the most frequently asked questions about hedge funds. Our company receives over 150,000 e-mails each year, many of them asking the same questions that are covered here in this chapter.

HEDGE FUNDS 101

Question: What is a hedge fund?

Answer: A hedge fund is a private investment vehicle in which investors in the fund typically are charged a management fee plus a performance-based fee. While this definition has been true for some time now, there are dozens of variations of hedge funds, and many look a lot like private equity funds and venture capital funds. While the hedge fund industry has been organically growing in real size, it is also growing simply due to the application of the name hedge fund to an increasing number of investment vehicles. Typical hedge fund management fees are between 1 and 2 percent, and typical performance fees range from 15 to 30 percent. Investors are drawn to hedge funds because they have strong incentives to perform very well in order to take down a large dollar figure as part of the performance fee charged by the fund. While some would say this is a light version of the definition, the truth is that the model has expanded in so many directions that any more details would leave out billions of dollars worth of hedge fund strategies and models. The ...

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