Sovereign Crest

Jobs in hedge funds have some of highest salaries and bonuses among all finance jobs. Like most investment funds, the hedge funds charge a management fee , which is a percentage of the Net Asset Value of the fund at the time when fee is payable. This usually varies between 1 to 4% of the fund value annually, though 2% is the standard value. However, some funds do not charge a management fee, only a performance fee .

The performance fee is paid to hedge fund managers based on the returns of the hedge fund. Unlike the management fee, which is paid even if the fund performs poorly, the performance fee is paid only if the performance exceeds certain predefined benchmarks as the investors are willing to pay more, if they earn more from their investment. The average performance fee is usually 20% of the gross returns, but some reputed hedge funds may charge a fee which may be 50% of the returns.

The payment of the performance fee also depends on the whether the value of the fund has exceeded the high water mark - the highest net asset value it reached previously. For some funds, the performance fee is paid only if the returns exceed those of a previously agreed benchmark rate.

In most countries, mutual funds and brokerage firms are subject to government regulation to ensure that the general public who invests in it are not mislead by false promises and the fund managers do not mismanage the fund resulting in large losses to the investors. However, there are investors who are looking for high returns and are willing to bear losses if the risky investments fail. Hedge funds are formulated for these investors and are exempt from government regulation.

Hedge funds are known for the secrecy of their operation. They are usually only open to accredited investors and high net worth individuals. The number of investors is also limited, so that they can remain unregulated. Compared to other funds, there is more flexibility in operations and their investment strategies include futures, derivative contracts and short selling. Since only a limited amount of information has to be released to the public, they can keep their business strategies a secret.

The amounts invested in Hedge funds has increased substantially over the years as they offer better returns. They specialize in certain markets like distressed debt and high yield derivatives trading.

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