Most of the types of investment vehicles are self-explanatory. Hedge funds are limited to being investors that are accredited i.e. someone with a net worth of more than $1 million or annual income of $200,000 or more for the past 2 years and the current year. For a married couple, the minimum annual income level is $300,000. On the institutional side, the firm (known as a qualified purchaser) must have a net worth of $5 million. A hedge fund may have up to 100 investors or 500 institutions invest in it.
Hedge funds have major differences with mutual funds. They are allowed to have long and short positions. They can use leverage to optimize returns. Their universe of investments is much wider. They are allowed to invest in 144A securities as part of a private placement, use derivatives such as futures and options and specialize in a sector or strategy. Hedge funds are now registering with the SEC and the trend is for more regulatory oversight of them.
Some examples of each type of buy-side firm are:
- Banks - asset management arms such as Goldman Sachs Asset Management (GSAM) and Credit Suisse Asset Management (CSAM)
- Insurance companies - New York Life and MetLife
- Pension funds - Texas Teachers Retirement Systems and California Public Employees' Retirement System (Calpers)
- Endowment funds for universities - Harvard Management Company and Yale Endowment Fund
- Hedge funds - S.A.C. Capital Management, Paulson & Co and Soros Fund Management
- Mutual funds - Fidelity, Vanguard and Black Rock
- Sovereign wealth funds - Government of Singapore, Abu Dhabi Investment Authority and Permanent Fund of Alaska
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