Hedge Fund Characteristics
Chapters in this video
- 0:00 The velvet rope: minimum investments and accredited investors
- 1:55 General partner, limited partner, and the K-1 tax form
- 3:03 The 2 and 20 fee structure with real math
- 4:00 High-water mark and the recovery loss protection
- 4:26 Private equity: venture capital, leveraged buyouts, distressed debt
- 5:30 Lock-up periods, redemption windows, and gates
- 6:38 Rapid-fire exam recap
What this video covers
- Why hedge fund minimum investments of $250,000 to $1 million or more, combined with accredited investor rules, completely exclude retail investors
- The general partner (GP) and limited partner (LP) structure, including the GP's fiduciary duty and the pass-through tax treatment that produces a K-1 form instead of a 1099
- How to calculate total fees under the 2 and 20 structure: a 2% management fee on all assets under management plus a 20% performance fee on profits
- What a high-water mark is and why it prevents a manager from earning performance fees on gains that merely recover prior losses
- Why private equity holdings inside hedge funds have very long holding periods and no active secondary market
- The sequence of liquidity restrictions: lock-up periods with no redemption rights, advance notice requirements, limited redemption windows, and gates that cap total withdrawals
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete SIE course in the app is free too, including adaptive practice questions and spaced-repetition flashcards.