Running a hedge fund is a sure path to riches with news that the world’s top 25 managers took home a combined fortune of £9 billion, says Institutional Investor’s Alpha.
From that total, nine of them made more than £328 million each.
Closer to home, Peter Hargreaves made his fortune as a partner in investment funds and is listed in the Sunday Times’ Rich List.
He co-founded Hargreaves Lansdown with Stephen Lansdown and after starting trading in a Bristol bedroom they turned the firm into the one of the UK’s leading financial services businesses.
Peter is now listed at number 47 on the list with a fortune of £1.53 billion while Stephen is placed 95 with a £900 million fortune.
How much to start a hedge fund?
Alongside them is Alan Howard, who runs a successful fund, and is worth £1.5 billion and is at number 48 and several more managers make the top 100.
However, it appears that breaking into the world of hedge funds is harder than ever.
Anyone starting a fund will typically need between £33 million and £65 million in assets just to open the doors.
With the standard hedge-fund worth £33 million, it would see management fees of 2% on the assets plus 20% of the profits which would bring in around £1.3 million should the funds do well but it appears that is no longer the case.
However, competition is seeing a decline in fees and poor returns with funds of that size now seeing returns of half of that amount.
In addition, hedge fund expenses have rocketed particularly because investors and regulators want stronger compliance, which costs more money.
No more star traders
Though it is more difficult to launch a hedge fund, those that do are typically small in size with £33 million in assets though industry experts say the fund that is twice that size is more likely to be successful.
Hedge funds also dominate the headlines and used to attract huge investments from the wealthy, but nowadays the main investors tend to be pension funds which are looking for risk adverse investments which in turn mean it is more difficult for a hedge fund is to really take off and be successful.
More than half of all hedge funds have assets of less than £66 million, which represents 1.4% of the industry’s £1 trillion in assets.
There are fewer star traders setting up on their own now, but there are still opportunities for those managers the wanting to shine.
Those who do have had big backers such as Goldman Sachs and Blackstone who are willing to finance innovative new managers with more than £10 million in seed funding for a slice of the profits – generally around 20% of the money they make