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Hedge Fund Companies

From the big multi-billion dollar hedge fund companies in New York to small fledgling management firms all over the country, the global hedge fund industry has become the primary professional focus of a number of financial companies and individual managers. Historically, contacting these firms and gaining access to sufficient data to make an informed investment decision has been an effective barrier preventing many private investors from getting accessWith CARL, these days are finally over – and it's high time you took a look at what hedge fund companies can do for your portfolio.

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What Is a Hedge Fund Firm?

A hedge fund company consists of all the people, infrastructure, and resources needed to keep a hedge fund running. It's effectively the real-world office running the financial construct of the hedge fund, the group of people who pool money from investors to make investments in the stock market and other assets to generate returns.

Importantly, a hedge fund firm can oversee multiple funds at the same time, though the smaller firms in particular usually focus on a single one. While hedge funds and the companies running them are often treated as the same thing colloquially, this is actually a misconception.

Note that a single hedge fund office can run multiple funds, and each of these can either focus on a single hedge fund strategy or be set up as a multi-strategy fund.

While we often associate hedge funds closely with their top hedge fund manager or management team, hedge fund companies actually employ people in a variety of different positions:

  • Analysts and hedge fund managers are responsible for making investment decisions.
  • Execution traders invest in assets according to the managers' investment strategies.
  • Back office employees provide support in various fields, from accounting and IT to risk management and compliance.

These financial management companies fund themselves through a "management fee" and a "performance fee". The management fee is typically 2% of the value of all assets under management, while the performance fee is 20% of returns above the hurdle rate (the minimum threshold for returns to trigger the performance fee). This system, known as "2 and 20", is designed to provide the management firm with a regular income to pay employees and other expenses. At the same time, the performance fee entices them to invest and hedge in a way that's likely to create maximized returns.

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Who Owns a Hedge Fund Company?

Hedge fund firms are typically founded and owned by the hedge fund managers themselves. This is advantageous for investors since the manager in charge of the investment strategies feels a greater sense of responsibility towards the firm's success.

In addition, many of these high-profile hedge fund managers have previously made a name for themselves in the financial world. This significantly benefit the investment management firm since investors often trust famous figurehead hedge fund managers. However, whether star appeal is always the right way to go for investors is a hotly debated topic, as even the most experienced fund managers may make mistakes every once in a while.

How Many Hedge Fund Companies Are There?

The number of active hedge funds changes too frequently to count accurately, but it generally ranges in the high four-digit numbers. That being said, most of these management companies oversee only comparatively small funds, with the vast majority of offices that manage investment funds holding assets under management (AUM) below the $100,000,000 threshold.

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Structural Differences Between Quants and Traditional Hedge Funds

Quantitative hedge funds such as the ones CARL specializes in are still relatively new to the hedge fund industry, and so are many of the people and firms that run them. For comparison, while the average age of most quants is only a few years, many traditional funds have been active for many decades.

As quants use machine learning, computer modeling, and similar techniques to analyze data and then make investment decisions based on algorithms, firms specializing in these funds also differ slightly in how they are set up. Notably, the upper management of quants is often staffed with computer scientists, programmers, mathematicians, or people with a background in other natural sciences. This is in stark contrast to traditional hedged investment funds, where managers often have a background in investment and finance.

This also means that quants usually have no investment manager – or rather, the investment management team is focused entirely on overseeing and improving the algorithms that make investment decisions.

The fact that quants are usually run by people with a background in natural and computer sciences is one reason why many quants start off comparatively small – Hedge fund investors are generally not "wowed" by the names associated with quants since they often lack a financial pedigree. This means your typical quant starts as the brainchild of a group of tech experts with only a few million dollars in AUM, and they have to prove their algorithms before the investment world at large takes notice.

How to Get In Contact With a Hedge Funds Management Firm

There are a number of good reasons why hedge funds haven't caught on with a large portion of eligible investors. The most fundamental barrier to investing in them is lack of access. While any US citizen who qualifies as an "accredited investor" (dependent on high net worth or income) is eligible to invest in them, most people wouldn't even know how to start. In fact, for the longest time, if you were trying to get into hedge funds, you'd have to

  1. Find out which hedge fund companies even exist, via listings, etc.,
  2. Contact them to figure out which of them are currently open for new investors,
  3. Prove your status as an accredited investor to each of them individually and
  4. Start investing via whichever process they use.

The amount of work required, and the risk involved in investing in a hedge fund without a clear overview of their performance and the market as a whole has usually made many smaller investors shy away from hedge funds. They typically focus on mutual funds, private equity, or other less "arcane" investment models – these investments might not give you the returns you want, but they're easy to understand.

CARL aims to change this status quo. The CARL app gives you direct access to many quant hedge funds open for investment which are vetted via our due diligence process. You no longer need to determine which hedge funds are available and how to contact the firms behind them. Just set up a CARL account, prove that you qualify as an accredited investor and you can start investing!

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3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

Set Up Your Account

Quickly and securely create your account, verify your investor status and become a member of our community.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

Fund Your Investment

Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

No More Need to Deal With Firms Directly

It used to be that you had to know someone who knew someone just to get started with hedge funds. We believe that approach is a relic of the past. Digital infrastructure now allows all eligible investors to invest in these lucrative investment vehicles, including the high-tech quants you'll find via the CARL app. And that alone may revolutionize the financial markets of the future. Join CARL today, and we'll get you in contact with exciting hedge fund firms running funds with 15%+ targeted returns, no lock-up periods, and virtually zero risk of human error in the decision-making process.

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