Mike, a classmate, saw that people in finance were making a lot of money, and wanted to start a hedge fund for fun, so he went to Goldman Sachs to apply. Uncle Sam from Goldman Sachs said, OK, it’s okay if you want to start a fund. We don’t have many rules here, but you have to

To meet the only condition, you have to make sure that more than 65% of the investors are wealthy people. Even if they are not Gates or Jiao Busi, they must be worth millions and have an annual income of more than 200,000 US dollars. Otherwise, you will be a fool.

, you don’t care whether the poor live or die, but the US imperialist government still cares. This first feature is called Accredited Investor.

(Qualified investor) After walking out of the bank, classmate Mike felt that the world was beautiful, but wait, where is the money?

He found Gates, and Gates said, do you want me to invest money in you?

You said it so nicely, how much money did you invest in it?

You don't dare to invest money in your own fund, how can I trust you?

Classmate Mike thought it was reasonable, so he decided to put 4 million of his own wealth into his own fund.

Gates took a look and realized that this naughty kid was so domineering and must have some real abilities. Then I might as well invest a few million to have fun.

This second feature is called Large Personal Stake.

(Large private equity) Mike thought again, it’s not enough to have this super-rich investor’s money. Jack, the man serving the dishes at the Starbucks next door, also wants to invest. This kind of ordinary person with 12,000 yuan wants to invest in my fund.

, should I accept it or not?

No, first of all, I don’t have enough manpower here. It would be exhausting to deal with small customers one by one.

Secondly, it is too troublesome to deal with so many people for such a small amount of money. Thirdly, I still want big money. Only if millions of people invest in me can my fund develop rapidly.

Therefore, it is better to be short-term than excessive, and it is better to target rich people. The minimum limit for those who want to invest in my fund is 1 million dollars. If it is less, I will not look forward to it.

This third feature is called High Minimum.

(High threshold) Okay, all the clients have been recruited, and the fund size is 40 million. Mike thinks this is beautiful, but he still has to be on guard. There is an investor named Kevin, who is notorious. He often withdraws his capital after a week to amuse others.

, it’s still several million after all. I’m going back and forth in the market, and I want my life, so I set a rule. If you invest in my fund, you can’t take it out in the first year. It doesn’t matter whether you live or die.

To me, this fourth feature is called First Year Lock-In.

(The first year of lock-in period) This alone is not enough. It is safe within one year. What about one year later?

When customers want to withdraw their capital when they want, won’t Mike be in trouble?

Therefore, there are only a few designated days a year for divestment (maybe once a year). When the day comes, send an email to customers in advance to remind them of this. The divestment day has arrived. If you want to divest, divest quickly. After this village, there will be no

This store is great, please tell us in advance if you are interested.

This fifth feature is called Infrequent Redemption.

The money problem (non-frequent redemptions) was solved. Mike thought, okay, finally started investing. As a "hedge chicken", don't think that this is really necessarily related to hedging. This is just a legacy of history.

As for the naming problem, as a hedge fund, it is just much less restrictive and has the freedom to use various investment strategies, such as Long/Short (long-short strategy), Event Driven (event-driven strategy), Global Macro (global macro strategy), Distressed Securities (

Junk securities), the more excitement there is, the more excitement there is. Also, I can invest in stocks, bonds, CDS (credit default swaps), and many weird derivatives, and do whatever I want.

This sixth feature is called Variety of Investments.

(A wide range of investment varieties), of course, no one said that hedge funds cannot simply buy some stocks and engage in value investment, the same way as public offerings.

Now comes the best part, collecting the money!

Mike, classmate, works very hard (or pretends to work very hard) to invest, isn’t it just for the final dividend? If I make money, I have to share 20% of the money earned. If I don’t make money, I can’t work in vain.

Venue fees, labor fees, my errand fees and hard work fees, at least I have to charge 2% a year.

This rule is almost an industry rule, and most hedge funds have similar rules for collecting money.

This seventh feature is called 2 / 20 Gains.

(2/20 remuneration principle) Mike saw that other people’s funds easily cost hundreds of millions, and he couldn’t bear the loneliness. A fund of 40 million was not enough for others, so he went to talk to Uncle Sam at the bank, lend me some.

Money, I have a great idea, guaranteed to make a lot of money.

Sam is a very talkative person and approved $200 million to Mike without saying a word. This is called 5:1 leverage.

So, this eighth characteristic is called Leverage.

(Leverage) Basically, most hedge funds include the above 8 characteristics. Those that meet these conditions are hedge funds, rather than literally "funds that adopt hedging strategies."