What Exactly Are Hedge Funds (And Why Are They Always Causing Problems)?
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- Опубліковано 6 тра 2021
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CORRECTION: While some articles referred to Archegos as a hedge fund, it is actually a family office. Sorry for the mix up.
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We've all heard about hedge funds, but what exactly are they, and why can't they seem to stay out of trouble? We dive into the topic in today's video.
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This channel is for education purposes only and is not affiliated with any financial institution, although Richard does work as an employee for an investment manager. Richard Coffin does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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@@mrpmj00 Not with the massive short squeeze about to margin call hedgefunds that own all those stocks. Look what happened to Viacom and Discovery the other week when Arcegos got Margin Called, Bagel should have shown the graphs in this video when he brought it up
Hedge funds: “we hedge against risk.”
Me: “sir, this is a casino.”
The only casino where card counting is mandatory.
@@samsonsoturian6013 Card counting had always been mandatory
For the house.
@@lcmiracle anyone can play as the house. It's called the Wheel.
@@samsonsoturian6013 The wheel has one of the highest odds in house favor of all casino games offered in the united states
@@lcmiracle because it isn't gambling
Its not the risky behavior that makes us upset, its the fact that they were subsequently bailed out. Without consequences, crazy risk is incentivized, and I blame the people who enable it. In any other sector, this would be seen as criminal negligence or worse. Literally the WORST thing you can do to reduce criminality is to nationalize the consequences
Totally agree
ya but that price action and liquidity tho
@@MrBloonbloon high frequency traders attempting to arbitrage & index funds provide plenty of liquidity. Not to mention market makers. Hedge funds aren’t needed
@@MrBloonbloon theres a difference between arbitrage and manipulation, even if it is pretty thin sometimes
Exactly!
I gotta say I’m 16 and you really simplify complex subjects down really well especially for teenagers that wanna learn this stuff. u teach me a lot👍
except if you took a test about this.. this would not even let you pass. Sorry to give you the bad news that most things require a super complex answer (still dont understand why that is the case but meh)
@jay cohen, this video is bullshit.
@@p.p.8624 I am 13, just trying to understand stuff rather than going too deep. Understanding is the way to learn further complexity
@@likemysnopp Could you really expect that from a 13 minute long video?
Wow, 16 and 13 year olds trying to learn about Hedge Funds. 😳👏🏼 I wish I was this curious when I was their age.
Hedge Funds also make your taxes potentially way more complicated. Good luck.
How so?
@@fauxhound5061 hedge funds issue K-1s for partnership interest and usually later in the year. Also since they can invest in anything it’s passed through to you as investing in anything. This includes foreign companies or other items that go the US has strict reporting requirements.
yes k1s suck so bad. I did my small business taxes first year this year and it was a lot more expensive just to buy supported turbo tax programs. And an accountant wouldn't have been cheaper...
@@thematthewyoung I’m a CPA so I’ve seen these hedge funds. They are pretty difficult for us too. We have a tax group that does it one way and another that enters them differently. It’s all up to interpretation
@@cohenmarioman thank you for enlightening me, didn't know that they'd pass the taxes back to you. Shouldn't they handle such things as a part of their overall service?
Reminds me of the movie The Big Short when Michael Burry basically shorts the housing market. He initially takes huge losses, and you can see the scene where he locks his clients out of withdrawing money. Never realized these were the characteristics of a hedge fund.
he was running a hedge fund
Thank you for making me feel like an idiot. I watched that movie so many times (and I have a background in Economics) and I never gave that angle a thought
The only thing I disagree with is that the companies dont have to disclose their accounts.
So many hedge funds now buy huge companies or such and then dont Have to disclose the amount that they have.
That rule should be added.
Hedgefunds have to disclose their long positions, they don't have to disclose their shorts. Archegos is not a hedgefund, it's a family office so they also don't have to disclose big positions.
SEC rule is you must file if you own 5% or more of the company.
@@imranarshad7302 They do if they own more than 5%…which it turns out Archegos owned 50% of some companies through swaps that they illegally did not disclose.
Hedge funds help the rich get mediocre returns by charging outrageous fees while also consistently underperforming any random index fund. Medallion is an exception obviously but it's closed for non-employees.
So why do they give them money?
@@p.p.8624 Same reason retail investors with normal income buy stupid stuff and underperform the market. It doesn't make any sense but people do it anyway.
@@p.p.8624 Because they sometimes succeed with astronomical returns and rich people see that as a great opportunity to get those astronomical returns again next year. Only to find out it's not necessarily repeatable.
@@Martin-qb2mw Not exactly true.The reason why rich people/institutions are okay with mediocre hedge fund returns is because they tend to do better during periods of crisis ie 2008 recession, which hedge funds outperformed the broader market. It’s meant for people/institutions who are more interested in capital preservation than gaining money.
@@nateosman5915 There are plenty of hedge funds that barely hedge and only underpeform. For the most part it's an embarrsingly bad asset class with a few outlier funds delivering massive returns. So kinda like gambling on biotech stocks.
You forgot the "Insider Trading" tactic
Well, simply put, a hedge fund is nothing more than an investment company that invests its clients' money in alternative investments to either beat the market or provide a hedge against unforeseen market changes
Nice summery bro
Ehh you just described a fund. What differentiates them is the lack or regulations. "alternative" is a bit misleading because normal mutual funds can invest in most asset classes. Hedge funds can do more but that part of the regulations in relatively minor compared to other regulatory differences. Like being able to prevent clients from pulling money out.
Subscribed, doggonit. This video was the one that pushed me over the edge. I even think finally I understand The Big Short, now, when that guys was saying, "I want my money" and Bale was like, ....and the guy said, "Give me my money. I want my money." And Bale was like...
Once again an excellent presentation on an economic topic. Thank you.
Thank you for the explanation, very helpful. Keep up the great work.
Thank you sir for these videos. I am one who isn't very smart on investing and markets but you always manage to have a easy to understand breakdowns.
Your channel is such a great resource for learning more about finance!
Love your videos! Thank you Richard!
Thanks Richard. 👍
Great explanation, as always. Thanks
such an underrated channel. thanks for your sharing your knowledge
I know this is a year old, but Subscribed. Us Gen exers need this type of info.
Thanks! Excellent and highly educational!
I really love how this channel is growing 😭 I’ve been here since 1500 subs. I’m so happy lol
This vlog is actually the best explanation I have seen for 101
Wait... so it's not a company that trims your hedges??
Huh, you learn something new every day!
Yo man. you are so damn good at this. thank you for the videos. i have enjoyed them and learned plenty!
im glad the YT algo does push your content which is how i found it.
Supremely helpful video, thanks!
Very informative, thank you.
Thanks for the great content :)
Really enjoy this channel. Your explanation of complex matters is really simple. You should do a breakdown of Wall Street buying up single family homes. I'd be curious to learn if its as bad as people say or if there might be some upside that I'm not aware of
There’s a Great Wall Street Journal article about this. The tl;dr version is that they only buy up a very small percent of homes and it’s not bad
3% is an absolutely wild mutual fund expense ratio
Please do a video explaining in simple English what SSR Short Sale Restrictions are and what the price associated with them are; I think I get it, but as most things with the financial sector there are barriers to entry including jargon and other nonsense designed to keep people out.
This is awesome thanks
It's interesting how they're basically their own world within the investment world. Crazy.
Excelent video. Thank you
Very well explained
Richard you’re the best! I always look forward to your videos because of their excellent quality and the fact that you eschew the over the top hype I so often see in other UA-cam videos. Thanks again for everything and please keep these awesome videos coming!
Nice video Richard 👍🏿
It's interesting because I always thought the concept of "hedging" denoted an alternative position to mitigate the potential loss of a riskier position.
That's diversification, when returns have correlations close to zero. Hedging is when you invest in a position that has a near -1 correlation with your initial portfolio.
@@tryrshaughroad551 I've always heard it applied to "hedging your bets". Not necessarily investments.
The original hedge fund was market neutral and had a lot of leverage, so the manager advertised the fund as hedged and that it would provide uncorrelated returns, thus hedging the partner's overall market risk from their other investments.
Nice work HDOD.
Thanks for subscribing Greg
-I appreciate the comment! 🔥
Thanks
Archegos is not a hedgefund, it's a family office.
Lol, so it run by some dude who already fucked up.
Well, it was a hedge fund until the manager was banned from investing other people's money. Same people, different name, only investing the manager's money.
Hedge Fund Manager: *Tries to predict the new emerging stocks*
Sixteen year olds on reddit: "You underestimate my power big boy..."
@Luís Andrade there's a major problem in that study. Portfolio managers have areas of expertise and they were given the full market iirc. This is like asking elon to predict the winners for the south asian healthcare industry.
Great content, as always! But just out of curiosity, is it right to classify Archegos as a hedge fund? Was it not a family office joint, closed for outside capital?
Yea I believe I mislabelled them; I’ve added a correction to the description
Nice explanation thanks!
Thanks for the info..
When you look into the positions Archegos had, it’s absolutely insane…
Very good
HE BROUGHT BACK THE SLIDING BAGEL!!!!!
This is a great video, Richard. I really enjoyed it and it gave a lot of good information.
I suppose my problem with hedge funds isn't out of FOMO "I can't have it so no one should be able to". It's what you spoke of at the end of the video. While they contribute to market efficiency, they also contribute to market disruption and crisis and they aren't regulated. Basically, they can contaminate the rest of the pool and no one keeps them in check. I feel that spillover cost needs to be controlled and that's why regulators exist.
Your retirement funding, which stays full clear of hedge funds, can implode like in 2008/9 just because of hedge funds. I can't find myself thinking that's okay. If they want you to have the risk, you should get some of the upside. If you can't get the upside, you should be protected from that risk.
They are regulated though. Quite heavily, especially after 2008
Ppl hate hedge funds because they are rich as ppl are not. Yes, it’s that simple.
I think people are just angry about the 2008 crisis and want someone to point fingers at.
@@AbdulGoodLooks it’s just not justified. This is gonna happens again about crypto. Then again of course they are gonna Elaine hedge funds! Like ppl, you’re the one that spending you’re stimulus money on BTC! You’re the reason it’s going up. But no, rich ppl bad, we good!
The problem is when they do well they keep profits and when they do dumb shit that backfires other people get to hold their bags. Plus, with the amount of leverage they have access to, they get to move markets entirely by themselves, especially in thinly traded assets. Or do you think the nearly 1 trillion dollars in declared margin debt in the market right now is people on Robinhood accounts?
3.33 that is literally my granmother's sewing machine
Can you make a video about mmm stock split and what it means for investors
Hey Hedge funds! Stay off my grandmother's sowing machine, it's a family heirloom.
Never better explained, Yummy Bagel! 🤣
Thanks Morning Brew newsletter! 😁 ... Reading it. It's nice. It meets a market need: unbiased news .. fun .. informative .. they don't seem to have a political agenda like big media outlets. Very nice. That's what I'm looking for!
I just want to point out something he talked about in the beginning of the video, Hedge Funds had absolutely nothing to do with the events of the 2008 Economic Crisis. All they did was short the living shit out of Mortgage Backed Securities (MBS's) and made a shit ton of money.
And they weren’t bailed out either. It’s weird how many people conflate them with investment banks
A select few did. A lot of them bought into the bubble by speculating on real estate, too.
Hey Richard, thanks for all the knowledge you are spreading. It has helped me.a lot as a beginning investor.
I was wondering: can you make a video about something I still do not understand;
Why do companies care about their stock price? If i buy a stock I give money to someone else, not the company. The company will not perform better or worse because of it. Then why are companies so focussed on upping their stock price/
Because if they decide to do a FPO (issuing more shares, after their IPO) to raise more money. And not only will they get more money while their shares are higher, if they can show a history of consistently pushing up their share prices, people are more likely to invest as they can expect a relatively safe return. They can also sometimes use it in other dealings as well.
Is it better to work for Hedge Fund or Asset Management?
I get the idea of hedge funds. I am wondering how much is the normal return of a hedge fund because it sounds like the risk to the inventor is very high.
Bill Ackmans fund tend to maybe not have a good 3 years but then give a 300% return pretty much. So when you look at wallstreetbets its not really that far off tbh
Thanks for helping refresh me for CFA level 3
Baygul Boi back at it again with a new video!
Great vid
3% management fee.......no thank you.
Depends on the return, bro
@@p.p.8624 i guess but starting of 3% down to management fees is definitely going to be difficult to beat the markets.
@@Moocow9991703 would be tricky to pass up on a 20%+ annual return though.
Steve Cohen had a 3% management fee and 50% of profits fee structure…but he averaged 30% gains a year AFTER expenses. So 60%+ before fees. Definitely worth it.
You mean 2 and 20% percent
Hedge fund: we're about hedging risk meaning we want to limit or eliminate it.
Also hedge fund: sorry it's too risky to invest with us. We use high risk investments on rich people can.
The name comes from how the return is intended to be uncorrelated to the market.
amazing!!! 🔥🔥🔥🔥🔝
Hi I want you’re thought 💭 on iShares Core S&P 500 GBX UCITS ETF USD Distributing? vs iShares Core S&P 500 UCITS ETF GBP Distributing?
Do you think actively managed ETFs like Ark and Global X will continue to grow (the number of them) since they only charge an expense ratio and if you find a good manager you can have great performance.
we have plenty of funds like that here.. and they outperform Ark a lot as well, especially long term.
@LMS where?
@@rithvikgujjula1400 sweden. But we have a bit different system then the US. Funny enough we also pay extremely low tax on stock investments. Like 0.000043% a year, no matter how much you as an individual buy and sell stocks etc. Inte called investment savings account.
@@likemysnopp what are the ticker symbols for those ETFs? But thanks for the Sweden tax info (not being sarcastic)
@@rithvikgujjula1400 oh they arent ETFs, we arent allowed to buy ETFs here.. at least not American ETFs.. so we gotta stick with a copy from germany if they have one. What im talking about is kind of like mutual funds. We just call them funds. One is DNB Technology. Or Swedbank Ny Teknik
Hi Plain Bagel, what do you think of Ark Invest ETF's? Is it something worth investing in?
They had great results in 2020 and they expect above average returns (25%) in next 5years. But on the other hand it can easily be just one lucky year + extra hype + beautiful words said by CW. Whats your opinion?
I would also like to see something on this
I made 50% in 2020 and many made 300-1000%. I saw a stock in just my small ass country go from 2 to 80 within weeks. Then it fell down to 40-50. If you look into funds/managers over the years you will see a lot of Arks and Cathie Woods. An example is the 1996-2000 period. Oh boy will you find a lot of hype and promises around that type from all fields.
Point is; dont buy the hype. Oh and also if you seriously need someone else to go thru what you should and shouldnt buy.. just invest in the entire market at vanguard or something.
Honestly… I feel the worse part is that they’re bailed out. If the person was poorer, and tried to pull the same nonsense, they probably wouldn’t get the same benefit, and it shows the same message we see a lot: if you have money, the rules don’t apply, and it affects a lot more of the lower income brackets than those at the top. Then again, that’s just my opinion, and I’m not a professional.
I just feel that folks who are apart of hedge funds should A) have to disclose their investments, just like everyone else, and B) if things plummet, and they lose out, they shouldn’t be bailed out. If they’re willing to risk, they should feel the repercussions, just like the rest of us.
The only investing youtuber out there that doesn't just tell lies and follow popular narratives for views
Amc gang!
No consequences for damaging actions does not allow for human values and morals to be built.
Richard: "Who isn't trying to _not_ lose money when markets are down?"
Me, a terrible investor: "Hold my positions!"
You’ve only lost if you sell when the market is down. If you’re in it for the long term then keep holding.
That is a good investor.
@@Anonymous-md2qpThis is wrong
Archegos wasn't a hedge fund but a family office. No external money
absolute legend, have learnt so much the past year
Archegos: “We’ve made 500x the market for 10 years”
Archegos in 2021: “To be nice, we’ve decided to give it all back” 😅
I want to start a hedge fund!
You'll need to get a license to give financial advice (degree and exams required) and enough seed capital to get an investment bank to send rich chumps your way.
Sesame Sam's never had a chance LOL
The old sliding plate logo is back
They are always causing problems because they are pursuing high valuation increases at any cost at the expectation of their clients instead of actually hedging. A hedge fund is supposed to be pursuing safety and value retention, not pursuing the latest and greatest meme stock to make record profits and that elusive 50% annual gain.
So you want to pay someone 20% of what ever the gain is just so you can .. eh.. maintain your money? Like seriously? The fuck do you think people pay hedgefunds for? To not make them money no matter what?
I’m sure you know better how to manage billions of dollars...
Hedge funds are the most insignificant “problem” in the financial industry.
@@p.p.8624 no I dont, which is why I dont have a problem with those who pay hedgefunds in order to get returns which they wont get from sp500 for example.
@@likemysnopp I was responding to knucklehead
Hedge funds don’t beat mutual/index funds when you include their fees over long periods of time. If not regulation, there should be transparency in the hedge fund space
Not in the long term you're right. However it can make sense in a holistic portfolio view if you start having lots of money
that depends on the type of fund. Not all hedge funds have the same returns for their clients and have management fees that range. your average index fund would have an annualised return of 9.8% with some going to fees. Whereas a hedge fund can easily generate 20%, depending on the size. I know fund managers that can make 60% P/L annually. Even if the fund took 40% of that and left 20% for its investors it would have more than doubled your listed alternatives. Renaissance's medallion fund made almost 80% last year despite being one of the biggest fund.
Is the Plain Bagel Co a Hedggie? Does it provide investment growth like the rising dough to make the bagels?
hi plain bagel
Hello
lol can't believe he replied
Worth noting that no hedge fund received taxpayer money in the 08 crisis. By “financial institutions” he’s referring to banks and insurers primarily.
Bull! They bailed out the whole financial system, including hedge funds. Whether explicitly direct or indirect is just semantics. Nice try hedge fund manager!
Lmao no he isn't. GTFO shill.
@@zamasu_777 they bait out the banks the banks and private investor save a few hedge funds
AMC!!!
For any of us that don't know what "leverage" is, just a si- it's debt. Leverage is debt.
Make a video about NFTs, i want yr opinion on that
5:32 into the clip, and I still have NO IDEA what a hedge fund is.
Remember LTCM?
4:31 Lol lol lol lol 😂😂😂😂😂😂😂😂
The markets are free and a level playing field... I feel like this video will be referenced in coming weeks.
Kyle Bass brings me here.
7:50 I WANT THAT VIDEO
please
🚀
I’m new to this channel. Is the background a portal reference 🤔
Thanks for subscribing Tyler-I appreciate the comment! 🔥
Hedges be hedging
auditors be auditing
XOXO
Hedge funds do have a place indeed, in my wallet. Keep stacking those AMC shorts, Im hungry.
2 and 20 sounds like they are incentivized to take huge risks and take their cut when they hit and dump the losses on the investor when they miss?
What do you call a bagel that flies????
A Plain Bagel
Nice pfp
Hedge funds need harsher regulations. There's no reason they can just do as they please and crash the economy whilst not suffering any consequences.
while i tend to agree with you but this is what capitalism is all about... every investors is doing it , selling high then buying low in every currencies or commodities/ stocks..and that goes the same with the hedge fund! capitalism doesnt break the law
Dude, these guys couldn't crash the economy even if they tried. DO YOU HAVE ANY IDEA HOW BIG THE MARKET IS!!!
And the only money at risk belongs to the rich chumps you hate so much, so why you angry?