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Start Your Own Personal Hedge Fund (and Pay Yourself the 20 & 2)

Oct 26, 2009 - 5:17 AM EDT

Joseph L. Shaefer submits:

The “standard” fee arrangement at most hedge funds is 2% of the assets they place at risk for you and 20% of any profits they make. Losses? That’s your problem, though new fees are typically not assessed until / unless you have surpassed the previous “high water mark” – that point at which your assets were at their highest paper value.

So give some hedge fund a million bucks and if they turn it into $1.2 million, they get 2% of $1.2 million and 20% of the $200,000 they made for you. Total fees: $20,000 + $40,000, or $60,000, leaving you with a profit of $140,000, or 14%. Not bad – when everything is sunshine and lollipops.

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Source: Seeking Alpha (Oct 26, 2009 - 5:17 AM EDT)