Are hedge funds capable of manipulating the market? (part 02)
Greetings friends, we continue with our analysis of hedge funds, the practices they use and the strategies they use, remember that these people have so much money that they not only invest in the market, they practically decide where the market goes since their investments are millionaires.
Long Term Capital founded in 1994 by Nobel laureates in economics Myron Scholes and Robert C., renowned traders in their first year achieved a return of 21% and in the second year of 41% and so on year after year until in 1998 they reported losses of 4.6 billion dollars, the reason was the exposure to the Asian crisis of 1997 and excessive leverage, because the group achieved a capital of 4.7 billion dollars, which is why it achieved financing of 125 Million dollars, so They achieved a portfolio of 1 bililon dollars, fortunately the US government intervened and orchestrated a rescue, otherwise it would have been a world crisis.
We already understand that investment funds resort to information traffic, excessive leverage and pyramid schemes, so most of them work under the 2 and 20 system, for example, if an investment fund achieves 100 million dollars, it already earns 2 million By management, that is divided with the partners and brokers who help to raise the capital, charging that money regardless of whether the fund generates a profit or not, as for the 20 of the 2 and 20 it refers to that they own 20% of the fund earnings although most include a good faith clause in the contract, stating that they will only charge 20% if the fund reaches 5 profitability points.
Hedge funds can do whatever they want as long as they reveal part of the strategy they are going to use in advance, many times they tell their investors that they cannot reveal the strategy because it is their business secret, apart from hedge funds They are not under the magnifying glass of the law like mutual funds, they usually escape from the super intendancy because to enter they require high entry fees of up to 100,000 dollars in some cases, they handle the money to people with incomes greater than 200 thousand dollars annually. Thus they convince their investors that they cannot be transparent in order not to reveal any trade secrets.
I do not want to make this publication any longer so we will continue it in a third part, I wish you a happy weekend.
Thank's for read
Hello friend @ramsesuchiha
The question implicit in the title of your article, Are hedge funds capable of manipulating the market, from my perspective it is not a secret that this type of practices have been running for years even using excessive leverage, without the proper authorization or consent of those who deposit in those hedge funds.
Best regards, be well.
That's right, my friend, excessive leverage is a complicated issue, it leads these people to manipulate the market with so much money, thanks you for read
this is something new for me and I like the way you explained. I like posts related to money and funds management and this is solid ready. thanks for sharing the post.
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I'm glad you enjoyed it friend, thanks for reading
Yes , I agree with this point as they are having huge funds and they have huge community which can easily manipulate any market like we have seen GameStop shares.
That's right, friend, they manipulated the actions of games stop, thanks for reading