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London Hedge Funds

London Hedge Funds

London is home to 429 Hedge Funds, but what do they do, and what makes them different? And why do the people running them get paid so much?

November 17, 2021

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London Hedge Funds

London is home to 429 Hedge Funds, but what do they do, and what makes them different? And why do the people running them get paid so much?


This week we’re going to look a little deeper into hedge funds and what they do that makes them so infamous, and they are infamous; it’s often the fees they charge and the money they make themselves that grab the headlines.


What is a Hedge Fund:


Contrary to popular belief, their main interest is not hedging investments. It’s making money. Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money (leverage) and trading esoteric assets, in an effort to beat average investment returns for their clients. 

The only reason they may occasionally act as a hedge for a standard portfolio, is that they are able to short the market. This means they can make money if the market goes down. Having said that, more often than not, they will be even longer stocks than anyone else due to the FCA allowing them to leverage trades.

They are considered risky alternative investment choices.


Hedge fund managers are the villains of the investment world; everyone hates them, yet everyone wants to be them. Hedge Fund managers make the most money out of anyone in the city, but why? Do they make other people the most money? The short answer, is no.


Last year, 15 hedge fund managers made over $1bn in earnings. In fact, the top 25 made over $32 billion. I feel this statement requires a pause to let the shock sink in.

Surely if a hedge fund manager makes billions, they should be making billions for their investors?

It is at this point, that we would like to put hedge fund returns into perspective for our users on The Portfolio Platform.

On TPP, we provide great professional traders who look to beat the market. In 2020, there is no doubt that our platform outperformed. The average return was 58.8%, and this was incredible. 

2021 is also looking strong with many strategies repeating their performances of 2020. However, how does this compare to the hedge fund world?

In 2020, Hedge funds had their best year in a decade, and the average return was 11.02%.

The number one paid hedge fund manager, according to CNBC, was Israel “Izzy” Englander of Millennium Management, earning $3.8 billion. 

This is an eyewatering number. So how did the highest paid hedge fund manager in the world perform? Well, it goes without saying that his fund had a great year. In fact, it had it’s best return in 20 years, making 26% for its investors. 

Is this number as eyewatering as his salary? We don’t think so, but the investment world is old fashioned and most Investment Managers have to cower in awe of such returns as they cannot make more than an average of 8%.


So, a fund makes 26% in their best year in 20, and the manager takes home $3.8 billion. At The Portfolio Platform our traders averaged a return of 58.8% in 2020, and our fees are $100 per month, per trader. We charge 0% performance fee rather than the 20% a hedge fund would charge, and 0% management fee.

What we have built is truly ground-breaking. We aren’t saying we will outperform every year, that would be impossible. But what we are trying to open people’s eyes to the reality of how the world of investments works and offer something better.

Most of your pensions will be paying these hedge funds the 2% management and 20% performance fees, and then high fiving if the return is anything over 10%! In the investment world, if you perform, you get paid a lot of money.

Having said that, another sad fact is that many get paid a lot of money even if they don’t.

In second place in 2020, was Jim Simons of Renaissance Technologies, who earned $2.6 billion. His investors, however, didn’t do as well. Renaissance Technologies’ three main funds for outside investors were down 20% to 30%, according to report. Simons retired on Jan. 1.

To be honest, if I made $2.6 billion and lost over 20%  for my investors, I would probably have retired as well.

Jim Simons yacht

Renaissance was not an anomaly and many hedge funds underperform. Bloomberg stated in 2014 that it was as many as 90%, but that seems a little high even to us. It’s a very secretive world, and this is hardly surprising as it has much to hide.  

Most people know very little about them. The very words are revered by those who don’t understand.

The fact is trading is itself a commodity. It’s a skill that takes decades to learn, and financial derivatives used by hedge funds, and The Portfolio Platform, are the most complex of all. Hedge funds hire the best they can find, to trade them, and they fight over the ones who make money, offering higher and higher salaries in the hope they can beat the average market return.

Traders are a limited resource. With over 3,000 hedge funds in the US alone, most are filled with inadequately trained and skilled traders who actually make the funds very little. Last year, hedge funds had one of their best years ever due to the incredible opportunities created by the pandemic.

One of the best years in a very long time, and the industry average was a return of 11.02%.

 

In 2008, Warren Buffett famously issued a challenge to the hedge fund industry, which in his view charged exorbitant fees that the funds' performances couldn't justify. Protégé Partners LLC accepted, and the two parties placed a million-dollar bet.

The contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years.

Buffett has won the bet, Ted Seides wrote in a Bloomberg op-ed. The Protégé co-founder, who left the fund in 2015, conceded defeat ahead of the contest's scheduled wrap-up on December 31, 2017, writing, "for all intents and purposes, the game is over. I lost."

 

 

Since the bets conclusion, the hedge fund industry has grown and grown, even though it was proven that investors were better off putting their money in a simple tracker!

With this in mind, The Portfolio Platform are now offering both in one place. We have actively traded strategies that will play the market on both the long and the short sides, who will look to make money regardless of market direction, and now, we have a selection of long term trackers. 

Not only are we about to launch trackers on the S&P, Dow Jones, and Nasdaq, but they will be leveraged, and controlled by The Portfolio Consultancy.

All you have to do, to be in a leveraged tracker, is simply link your account by subscribing for $75 a month. That’s it. That is all the fees to be paid. You keep all the profit, and there are no hidden entry or exit charges. The Portfolio Consultancy will do the rest via the Platform’s autotrade technology.

Is this the best of both worlds without the charges? We believe so, but don’t take our word for it, see what our users are saying here.


To find out more about The Portfolio Platform and how we are enabling retail investors to link their own portfolios to our traders please click here. We have made it possible for you to set up your own account with as many traders as you like. Build the equivalent of your own Hedge Fund using our traders who have already been vetted by us, and hedge it yourself by including a tracker or two. 

See their performance records, make your selections, and let your portfolio go to work


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