Wall Street Winners Get Billion-Dollar Payday
-NY Times 4/16

A close friend of mine sent me this link - and I'd like to give my response as a post since there is a lot of confusion regarding Wall Street and Hedge Funds.

What is a hedge fund? A hedge fund is an asset that people invest in to make money (similar to investing in a mutual fund or even buying a stock). The difference is, the managers of the hedge fund act in extremely risky ways - for example betting against the US economy or betting a stock will rise exactly 7.4% on the third Tuesday of every month. They use very complicated financial models and more than half of them lose a shitton of money (read about Long Term Capital Management of 2001).

Who can invest in hedge funds? Most funds will not allow investments less than $1 million. Usually it is investors with over $50 million of funds (i.e., extremely wealthy).

How do managers get paid? They take 10-20% of the profits they earn for their clients.

Now, regardless of whether you would invest in a hedge fund (no one on this blog is allowed to, because you have to be classified as a "savvy investor" with the SEC), it is clearly not a vehicle that further separates the rich from the poor. If anything, it increases tax revenue for the government since these investors and managers in the highest bracket.