And one method that wealthy investors are using to maintain prosperity is through the use of hedge funds.
A hedge fund is a private investment fund which is able to engage in a wider array of activities than other, more regulated, investment funds.
Historically attracting private wealthy investors, in recent years the hedge fund space has become much more institutionally focussed, with pension funds and insurance companies allocating money to hedge funds.
Such funds do attract a great deal of money. The 2008 Hedge Fund Asset Flows & Trends Report published by HedgeFund.net and Institutional Investor News estimates total industry assets reached $2.68 trillion by the third quarter of 2007. That is a great deal of money.
Hyde Park Investment International Limited is one company in the hedge fund arena which, following success in other European markets, has decided to open an office in Malta. The company raises capital for hedge funds from institutional investors.
“We have an international team of professionals that combines many years of financial services experience within a variety of markets. In addition, we are unashamedly selective about the funds that we choose – after all, our revenues are dependent on the performance of these funds,” explains Jonathan Lee, Hyde Park’s principal.
Hyde Park was originally established early in 2004 and currently has eight full time and a number of part time employees, with revenues of around €1.76 million in the last six months to the end of September 2007.
“Having an office in Malta allows us to move our Group's geographical sales coverage southwards and eastwards. And our Sliema offices will also house a research and administration team,” Mr Lee says.
Malta also has an excellent tax structure for these types of financial institutions, making the island an attractive location.
Despite a growth in hedge fund managers in Malta, London clearly remains Europe’s leading centre. At the end of 2007, three-quarters of European hedge fund investments, totalling around $400 billion, were managed from London.
So what does Hyde Park Investment do for hedge fund managers exactly?
“Ideally, hedge fund managers should be focused on the performance of their fund. However, they often also have to contend with other duties – such as the marketing of their fund and the sourcing of investors. We have a great deal of experience in these fields and can also assist fund managers in matching investors with their funds, allowing them to focus on what is important – making sure the fund performs well,” Mr Lee replies.
Many hedge fund managers work on what is known in the industry as a ‘two and 20 basis’. This means that a manger receives a two per cent annual fee based on the total value of the assets he is managing, as well as a 20 per cent share of the profits from the performance of the fund. So if the fund does well, then the manager is similarly rewarded for his work.
“The majority of our income stems from the performance fees, meaning that our own interests, and those of our investors, are well aligned,” Mr Lee notes.
Hedge funds present unique risks and are certainly not for everyone, but are rather for seasoned investors, but a well managed fund can offer substantial returns.
How much is a good hedge fund manager worth?
Ever wondered what the earnings for a top hedge fund manager were? We looked up Trader Monthly's list of 2007’s top five earners:
1. John Paulson, Paulson & Co. - $3 billion+
2. Philip Falcone, Harbinger Capital Partners - $1.5-$2 billion
3. Jim Simons, Renaissance Technologies - $1 billion
4. Steven A. Cohen, SAC Capital Advisors - $1 billion
5. Ken Griffin, Citadel Investment Group - $1–$1.5 billion |