Why do the ultra rich stick money in hedge funds.

Quote from DT-waw:

Still, huge majority of HNWI don't realize, that most hedge funds are designed to make the most income to HF owners and *less* income for investors, at their risk. this is done of course using mark ups, rebates fees and too high turnover.
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Just like Wall Street and finance industry in general.
 
These claims are unfounded. I have known several hedge fund investors who have made quite a lot of moneys.

Of course, like in any endevours of life, not everyone can be a winner. Even at an elite academic institution, not everyone can get an A.
 
Quote from SREC:

Just like Wall Street and finance industry in general.
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Acutally, this is true of EVERY company out to make a profit. The end user always gets jacked for the true value + whatever (labor, transporation, salaries, etc.).
 
Seeing how analysis is done for the wealthy, the answer is correlation.
In the long run the funds on average outperform SPY and to reduce drawdowns they put the money into uncorrelated funds to reduce stress. You can buy ETFs nowadays too but active management is still considered valuable.
 
Quote from DT-waw:

Few million dollars enables superb diversification possibilites.
With properly constructed strategies, HNWIs could make 35% returns with maximum 5% (yes!) risk.
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Enlighten us, please? In any case, what the hell is "5% risk" - is it 5% max drawdown? is it 5% P&L volatility? is it some other measure I am not aware of?

As for "why HFs?" - mainly diversification and decorrelation of the income stream from the rest of their investments.
 
Quote from noob_trad3r:

If they underperform the SPY ETF and the SPY etf has a cost of 0.10%

VS 2% and then 10-20% on any profits.

And to top it off you get lock out periods where you cannot touch your investment.
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because they are "sold" the idea that they are better than the average joe and therefore deserve a "premium" vehicle that will outperform all others.

Basically they just appeal to their ego.

Just shows you that rich people are no smarter than the average.
 
Quote from sle:

Enlighten us, please? In any case, what the hell is "5% risk" - is it 5% max drawdown? is it 5% P&L volatility? is it some other measure I am not aware of?
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yes, maxDD. not monthly, from daily peak to daily valley.
simple technology: just mix 50 single intraday strategies with profit factor over 2 on at least 8 markets.

i'm sure many HNWI will be very surprised if they'll find out that most HF managers are NOT interested in enhancing their trading arsenal, technology, etc.

Exactly like their investors, HF managers or owners are busy spending the money already earned on fees, traveling searching for new clients, investing in non-financial businesses.

Why hedge funds? Its potentially the best vehicle to invest.
Gold, real estate won't make any decent returns in the years to come.
Where else can you earn over 20% p.a.?
Well, some places come to my mind: sillicon valley, start-ups, Hollywood?
 
Quote from SREC:

Just like Wall Street and finance industry in general.
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Well, like anyone. Fleecing the client is not unique to finance, by no means.

I had an electrician come by to change some wiring. He took apart one of the light switches and disappeared saying "I have to go buy some parts". Needless to say he was paid by the hour and appeared back in about two, rested and happy.

Then he tried to charge me $150 for a $12.50 light switch he bought at the local hardware store, as evidenced by the shopping bag and the receipt in it. His response? He said "I have to make a profit, you assholes!"
 
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