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Simple But Not Easy: An Autobiographical and Biased Book About Investing by Richard Oldfield

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Chapter 3 – Hedge funds

Many definitions for “hedge fund” have been tried. None has quite done the trick. The former chairman of the SEC, William Donaldson, said: “The term hedge fund is undefined, including in the federal securities laws. Indeed, there is no accepted universal meaning. Basically, many so-called hedge funds are not actually hedged and the term has become a misnomer in many cases.”

The best definition probably is that of the sceptic who said that hedge funds are not an asset class but a compensation system. Their typical management fee is 1½% or 2%, and there is a fairly standard 20% performance fee, sometimes more and rarely less. The importance of fees is discussed in the next chapter.

The first hedge fund was started by ...

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