He charged his investors a fee for managing the fund, plus separate fees for each of the underlying funds.
The drawback: The fund of funds investor pays fees to the fund of fund manager and to the managers of the underlying funds.
Generally pensions investing in hedge funds of funds do not receive the audited financials of the underlying funds or monthly or quarterly performance reports.
Holding the card does not provide access to the underlying funds.
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The average fund of hedge funds investor pays a 2% management fee and an 11% performance fee, in addition to the fees paid to each of the underlying funds.
The investment strategy pursued by Reijtenbagh was thus hugely leveraged, given the amount of borrowed funds the underlying private equity funds used to make their portfolio investments.
On top of this, the underlying hedge funds charge management fees of 2% and one-fifth, or more, of profits.
For example, if underlying hedge funds were to purchase financial futures contracts for speculative versus hedging purposes, which is common, pension investment restrictions may be violated.
Known as funds-of-funds, firms such as Financial Risk Management and Synergy Fund Management have received billions of dollars from investors in order to assemble diversified portfolios of underlying hedge funds.
The higher yield in the underlying assets of funds like EBND are of no help, because EBND is down 1.5% so far in September while the zero yield of the iShares 3-7y US Treasury Bond (IEI) fund is up 0.35% thanks to higher bond prices.
Institutional investors are increasing their use of ETFs, Asian markets are a growing global force, and hedge fund managers begin to create ETFs that use hedge funds as underlying exposure.
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In the last few years, banks rushed to make commitments to big buyout funds to get access to the lending and acquisition advisory business presented by the buyout funds' underlying portfolio companies, a key part of their earnings stream during the credit boom.
They can be particularly lucrative for insurers because of high upfront commissions, plus ongoing "trailer" commissions and the underlying fees for the mutual funds included in them.
Because there is so much money flowing into dividend funds, the yields you would otherwise get from holding the underlying securities in proportion to their weighting in these funds is often dampened by the inflows themselves.
However, in our experience many pensions are advised by their so-called independent consultants to invest a significant percentage of their assets, say 20%, in not just one but multiple hedge funds of funds, involving 50 to 150 underlying hedge fund managers.
The number of hedge funds focusing on mortgage debt ballooned along with the underlying market in 2005-06.
But unlike closed-end funds, if SuperUnits developed a discount to its underlying securities value, then institutional investors could arbitrage the units and profit risk-free.
With respect to the underlying fund managers, pensions may be unaware whether the hedge funds or funds of funds they utilize are registered with the SEC.
Relatively inexpensive access to large sums of general purpose cash (i.e. no underlying trade transactions or projects making it easier to divert these funds for potentially nefarious purposes).
Since the beginning of the second quarter, U.S. Treasury bond funds have been money makers despite the fact that the underlying securities in the fund yield under 3% annually.
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Although returns have been quite good this year, the net asset value of these funds, which is tied to the quality of the underlying loans, has been slipping for several months, according to Morningstar, a fund-analysis service.
Redemption battles between hedge funds and their investors have been a common feature of the credit crisis as hedge funds blocked cash outflows in the name of preserving value of the underlying assets.
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" In addition, CNPC will receive an undisclosed amount of funding and will use those funds to repay an unspecified amount of "borrowings" (the underlying activities which these borrowings funded is also unknown), and to "fund the employee retraining and severance plans established in connection with the restructuring of the CNPC group.
Investment managers can only use profit allocation with investment funds and not on separately managed accounts, because only partners can share special allocations of underlying income.
Conversely, partnership tax returns are a better choice for investment funds focused on carried-interest tax breaks using special allocations, plus there is generally no underlying income subjected to SE tax anyway.
Over the last few years, hedge funds have made billions of dollars of investments in penny stocks using PIPE structures, often causing the underlying stocks to plummet.
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