Private Funds

What this video covers

• Why private funds are strictly limited to accredited investors and qualified purchasers, and how an exam question offering a fund to the general public immediately disqualifies it from being private
• How hedge funds use short selling, leverage, and derivatives to pursue uncorrelated returns, and why they are organized as limited partnerships rather than corporations
• The "2 and 20" fee structure: 2% annual management fee on assets under management plus 20% of profits, and what a high-water mark does to protect investors from paying twice for recovery
• Why private equity funds have 7-10+ year horizons, use capital calls to draw committed capital over time, and exit through initial public offerings (IPOs), strategic sales, or secondary sales to other private equity funds
• How hurdle rates work in private equity: the minimum return a manager must clear before earning any performance fee
• Why venture capital is a subset of private equity, not a separate category, and what distinguishes its focus on early-stage startups with active board involvement
• The critical liquidity distinction: capital calls pull money in over time (private equity), while lock-up periods trap already-invested money for set time frames (hedge funds)