Hedge funds report success in different ways, so it’s important to pay attention to identify what their numbers actually mean! 🧮

Let’s go over the 4️⃣ most common ways for hedge funds to report their returns 👀

1️⃣ Absolute return = the exact return the hedge fund made, regardless of how the rest of the market did 💪

So, if a hedge fund’s positions gain 10% in a given year, its absolute return is 10% 💸

2️⃣ Relative return = return compared to the S&P 500 or another benchmark.

Imagine a hedge fund made a 20% return one year, but the S&P 500 made a 50% return. 🤔

In this case, the hedge fund's relative return would be -30%. 📉 (20% - 50% = -30%)

3️⃣ Assets under management = the total funds a hedge fund has to invest.

In general, managing more money is considered to be better because you can make more profit with the same return.

Although AUM doesn’t directly affect your profits, a hedge fund’s goal is to earn the highest return on the most money! 🤑

For example, Ray Dalio’s fund Bridgewater Associates manages over $124 BILLION, so even a 7% return in a given year would be almost $9 billion! 🤯

Now you have four ways to understand a hedge fund’s performance! 🥳