Is an investment advisory firm that advises hedge funds also a hedge fund?
Would the firm FSI group be considered a hedge fund if it is an investment advisory firm specializing in the management of long/short equity hedge funds and private equity funds? What area of finance is this? Thanks
This sounds like a FOF to me. That's under the umbrella of Investment Management/Asset Management.
If it's this FSI Group: http://www.fsig.com/, you need to read their website more carefully. I don't mean to be rude or a jerk but the answer to your question is clearly contained on their site.
What this seems like to me - a hedge fund is just a legal structure. Each hedge fund is "advised" by a manager/management company such as FSI. So yes, in the way greenlight capital is a hedge fund, though technically greenlight capital is also an "investment adviser"
@kenny powers, What i meant was, maybe hedge funds don't like the term hedge fund and refer to themselves in other ways, like Hedgehog has suggested. I didn't know if hedge fund was the word a company used to refer itself to.
Ok, sorry if I was overly harsh. It's pretty clear from their website that they are in the business of making primary investment decisions (as opposed to providing research, consulting, or fund of funds services).
Hedgehog is correct; hedge funds, private equity funds, mutual funds, and basically all types of investment vehicles except for "on-balance sheet" investors like Berkshire Hathaway or Loews are generally structured roughly as follows:
Capital is placed into an entity (LLC, LP, etc), for example, KPCFA Master Fund LP (KMF), and that box enters into an agreement with an advisor entity, for example KPCFA Advisors LLC (KA). All of the investor capital stays in the KMF box (or more technically at their accounts with custody banks and prime brokerages); KA directs the custodians/trustees to purchase investments according to the advisory agreement in return for management fees.
This is why you'll often see hedge fund management companies described as investment advisors, hedge fund sponsors, or other similar terms: technically speaking they themselves are not the "funds" and the legal entity that makes the investment decisions and employs the PMs, analysts, traders, etc do not actually hold any securities or have any third-party capital.
Any thoughts on the benefits of having separate legal entities for capital vs management? I can see how it would make sense if the manager was a third party instead of in-house.
Looks like a hedge fund, from the site.
@kenny powers, I understand perfectly. Thank you very much. So it would be the partners in the advisory firm who are actually paid the big bucks. The partners in the actual fund would be rubber stamps right? Hypothetically.
Let me preface by saying that you should work on understanding how corporate structures work. This is very important for any investment professional to understand.
Your statement is not correct or at least reflects an incomplete understanding. A hedge fund is structured as a Limited Partnership ("LP"), as described in my example. In a Limited Partnership, there are generally two types of partner (but could be more, or multiple classes of a given type). Generally these are: General Partner, who is given the power to make day-to-day operating decisions; and Limited Partner, who are legally limited in their ability to conduct the operations of the business for tax reasons. (remember here that "partner" is a legal concept, and a corporate entity-LLC for example, or another limited partnership-can be the GP.)
In the case of a hedge fund, typically the advisory firm serves as the general partner while the investors are limited partners. The GP has the right to conduct investment operations and has power over the partnership's accounts; the LPs have the rights to the capital held in said accounts and have other rights that are laid out in their partnership agreement (usually the ability to redeem their money monthly or quarterly).
So it's not that the partners at the actual fund are "rubber stamps."
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