A hedge fund is a team of professional investors that invests other people’s money to maximize returns and minimize risk 🚀

Here’s how they do it 👉

1️⃣ They pool money

Pooling is when a hedge fund collects money from other people or organizations to invest 💸

The biggest contributors to hedge funds are wealthy individuals, big companies, big institutions, like universities or pension funds ✨

Let’s say Harvard gives a hedge fund called “Pershing Square” $500,000, and Elon Musk gives them $500,000 💵

2️⃣ Invest it.

Pershing Square now has $1,000,000 to invest in stocks, bonds, real estate, commodities, and really anything else they think can make money 🥇

Many hedge funds use some of the same strategies you might use to invest, like fundamental analysis, while others use higher-risk methods we’ll learn about.

3️⃣ They sometimes profit, and ALWAYS take a fee.

If the fund makes a profit, they return your profits at the end of the year 🤑

BUT they always take a percentage of your profits for themselves, called carry.

Most hedge funds’ carry is set to 20% of yearly profits 🤔

So, if the fund turned your $100 into $150 in a year, they would take 20% of your $50 profit at the end of the year 💰

That’s a carry of $10 for the fund 💸

Most hedge funds also take a percentage of your assets, or total money given to them to invest 🤔

So, if you gave them $100, they might take 2% which is $2 upfront – regardless of if they profit or not!