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QOTD: What is a Hedge Fund? April 21, 2007

Posted by federalist in Finance.
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From New York magazine’s amusing set on hedge funds:

According to Cliff Asness of AQR Capital, “Hedge funds are investment pools that are relatively unconstrained in what they do. They are relatively unregulated (for now), charge very high fees, will not necessarily give you your money back when you want it, and will generally not tell you what they do. They are supposed to make money all the time, and when they fail at this, their investors redeem and go to someone else who has recently been making money. Every three or four years, they deliver a one-in-a-hundred-year flood.”

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1. federalist - February 5, 2010

Myron Scholes, deep into this video debate, suggests that hedge funds legitimately make money by speculating — i.e., trying to predict the future — and/or by providing liquidity. Of course both are services that are and should be compensated to the degree they are successful.


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