How hedge funds work and what they invest in. | Wall Street Simplified

Visit our partner https://trymintmobile.com/galbraith to get premium wireless starting at $15/mo. SEE TERMS AND CONDITIONS BELOW.

$45 upfront payment for 3-mo 5GB plan ($15/mo equiv.) required. New customer offer for rst 3 mos only. Taxes & fees extra. See https://trymintmobile.com/galbraith for more details.

The book that changed my life: https://amzn.to/3ZvZyyF

If you have any questions, connect with me on LinkedIn: / cameronjgalbraith
Email me at: [email protected]

In this video, I discuss how hedge funds work, and the different strategies they employ.

Disclaimer: The views in this video are strictly my own, and are not those of my employer.

#wallstreet #finance #financecareers #banking #investmentbanking #hedgefunds #hedgefund

Chapters:
00:00 Introduction
00:41 What is a hedge fund?
01:30 2 and 20 Model
02:06 Long / Short
02:34 Global Macro
04:19 Activist Investing
04:37 Distressed Debt
05:01 LTCM Bailout
05:30 Melvin Capital
05:50 Conclusion

Tags: hedge funds, how do hedge funds work, hedge fund strategies, Top hedge fund strategies, What is a hedge fund, history of hedge funds, How do hedge funds make money?, what do hedge funds invest in, top hedge funds, Hedge fund analyst, hedge fund internship, how to get a role at a hedge fund?, investment strategies of hedge funds, long, short hedge fund, global macro hedge fund, activist investing hedge fund, distressed debt hedge fund

Script:

A hedge fund is an investment vehicle designed to generate high returns for wealthy investors. Unlike mutual funds or ETFs, which are highly regulated and available to the public, hedge funds are private, loosely regulated, and only open to accredited investors—meaning people with a net worth over $1 million or annual incomes over $200,000. Because they cater to the ultra-rich and institutional investors, they have far more flexibility in their investment strategies.

Unlike traditional funds, which focus on long-term stock market growth, hedge funds can bet on stocks going up, stocks going down, currencies, commodities, real estate, and even other hedge funds. Their name—‘hedge’ fund—comes from their original purpose: hedging risks by investing in both directions, long and short. Today, they do much more than just hedge; they aggressively chase high returns using sophisticated strategies.

Hedge funds use the “2 and 20” model, similar to Private Equity firms. They charge a 2% management fee on all assets under management and take 20% of any profits they generate. This means even if they perform mediocrely, they still collect huge fees. For example, if a hedge fund manages $10 billion, they make $200 million per year just from fees—even if they don’t make a single dollar in profit. If they generate $1 billion in investment gains, they take 20%, or $200 million, in performance fees.

Hedge funds don’t just buy and hold stocks—they use aggressive, high-risk strategies. Here are some of the most popular ones:

1. Long/Short Equity – Betting Both Ways. One of the most classic hedge fund strategies is going long on stocks they expect to rise and shorting stocks they expect to fall. A great example is the legendary George Soros, who made $1 billion in a single day by shorting the British pound in 1992. His fund, the Quantum Fund, placed a massive bet that the British currency was overvalued—and when it crashed, they made one of the most profitable trades in history.
—----

2. Global Macro – Betting on Big Economic Trends. Global macro funds make bets based on interest rates, inflation, and global events. One of the most famous hedge funds, Bridgewater Associates, run by billionaire Ray Dalio, uses this strategy. Bridgewater correctly predicted the 2008 financial crisis and made billions for its investors by shorting the stock market before the crash.

3. Activist Investing – Forcing Change in Companies, Some hedge funds buy large stakes in companies just to change how they’re run. Carl Icahn, a legendary activist investor, took a stake in Apple in 2013 and pressured the company to increase stock buybacks, boosting Apple’s share price and earning Icahn billions.

4. Distressed Debt – Buying Companies in Trouble. Hedge funds love distressed assets—companies that are in financial trouble but could recover. Firms like Elliott Management specialize in buying the debt of struggling companies, pushing for restructuring, and then making a profit when the company rebounds. They famously bought Argentina’s distressed government bonds at a discount and later forced the country to pay them back at full value, making billions.