Costs around a modern crowd-sourced hedge fund
"Your inference in #1 is incorrect.  The million dollars he has contributed is going to be part of the assets of the fund.  This is common practice and is a way for the founder to express confidence that the fund will make money.  He wants you to come up with a model that he can then use to trade those assets.  Presumably he will give you some money if he uses your model and it works. Regarding #2, there are lots of ways of getting data.  Sometimes you can buy it directly from the exchange.  You can also buy from vendors like tickdata.com.  There are lots of such vendors.  Since he makes a big deal about saying it's expensive, I'm assuming he is talking about data at relatively high frequency (not daily, which would be cheap).  Stock data is still not bad.  Complete US data would be a few thousand dollars (maybe 20K at the most).  For someone sitting at home with no capital, that's a lot of money, but for a hedge fund it's nothing. As an institutional investor, your broker will give you a data feed that will provide all prices in real time (but not historically).  If he's been in operation a while, he could have just saved the prices as they came out of the pipe.  I don't think that's the case here, though, based on how young he is and how little money is involved. In short, he paid for some data and has ""encrypted"" it in such a way that he can legally share it for free.  Supposedly his method preserves the structure so that you could write a trading model based on the encrypted data and it would work on real data.  Once you have a good trading model, you sell it to him and he will use it to trade his million dollars and whatever other money he is able to gather."
I don't know if this is exactly what you're looking for but Seedrs sorta fits what you're looking for. Private companies can raise money through funding rounds on Seedrs website. It wouldn't necessarily be local companies though. I've only recently found it myself so not sure if it has a uk or European slant to it. Personally I think it's a very interesting concept, private equity through crowd funding. Slice and Dice would have the approach for dividing things up into 25% of large/small and growth/value that is one way to go. Bogleheads also have more than a few splits ranging from 2 funds to nearly 10 funds on high end. Dollar Cost Averaging would be the likely balanced approach that I'd take. Depending on the size of the sum, I'd likely consider a minimum of 3 and at most 12 points to invest the funds to get them all working. While the sum may be large relative to my net worth, depending on overall scale and risk tolerance I could see doing it in a few rounds of purchasing or I could see taking an entire year to deploy the funds in case of something happening. I'd likely do monthly investments myself though others may go for getting more precise on things. **Defaulted to one day.**  I will be messaging you on [**2017-08-22 15:04:00 UTC**](http://www.wolframalpha.com/input/?i=2017-08-22 15:04:00 UTC To Local Time) to remind you of [**this link.**](https://www.reddit.com/r/finance/comments/6v2w77/crypto_assets_hedge_funds/dlxclh1)  [**1 OTHERS CLICKED THIS LINK**](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Reminder&amp;message=[https://www.reddit.com/r/finance/comments/6v2w77/crypto_assets_hedge_funds/dlxclh1]%0A%0ARemindMe! ) to send a PM to also be reminded and to reduce spam.  ^(Parent commenter can ) [^(delete this message to hide from others.)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Delete Comment&amp;message=Delete! dlxclp0)  _____  |[^(FAQs)](http://np.reddit.com/r/RemindMeBot/comments/24duzp/remindmebot_info/)|[^(Custom)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Reminder&amp;message=[LINK INSIDE SQUARE BRACKETS else default to FAQs]%0A%0ANOTE: Don't forget to add the time options after the command.%0A%0ARemindMe!)|[^(Your Reminders)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=List Of Reminders&amp;message=MyReminders!)|[^(Feedback)](http://np.reddit.com/message/compose/?to=RemindMeBotWrangler&amp;subject=Feedback)|[^(Code)](https://github.com/SIlver--/remindmebot-reddit)|[^(Browser Extensions)](https://np.reddit.com/r/RemindMeBot/comments/4kldad/remindmebot_extensions/) |-|-|-|-|-|-| The Vanguard Emerging Market Bond Index has a SEC yield of 4.62%, an expense ratio of 0.34%, a purchase fee of 0.75%, and an average duration of 6.7 years.  The Vanguard Emerging Market Bond Index only invests in US Dollar denominated securities, so it is not exposed to currency risk.  The US Intermediate Term Bond Index Fund has a SEC yield of 2.59%, an expense ratio of 0.1% and an average duration of 6.5 years.  So after expenses, the emerging market bond fund gives you 1.04% of extra yield (more in subsequent years as the purchase fee is only paid once).   Here are the results of a study by Vanguard: Based on our findings, we believe that most investors should consider   adding [currency risked] hedged foreign bonds to their existing diversified portfolios. I think a globally diversified bond portfolio results in a portfolio that's more diversified. I will be messaging you on [**2021-06-15 14:54:56 UTC**](http://www.wolframalpha.com/input/?i=2021-06-15 14:54:56 UTC To Local Time) to remind you of [**this link.**](https://www.reddit.com/r/finance/comments/6cvvei/a_hedge_fund_manager_is_supporting_a_free_masters/dixuco3)  [**CLICK THIS LINK**](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Reminder&amp;message=[https://www.reddit.com/r/finance/comments/6cvvei/a_hedge_fund_manager_is_supporting_a_free_masters/dixuco3]%0A%0ARemindMe!  4 years ) to send a PM to also be reminded and to reduce spam.  ^(Parent commenter can ) [^(delete this message to hide from others.)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Delete Comment&amp;message=Delete! dixvaea)  _____  |[^(FAQs)](http://np.reddit.com/r/RemindMeBot/comments/24duzp/remindmebot_info/)|[^(Custom)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=Reminder&amp;message=[LINK INSIDE SQUARE BRACKETS else default to FAQs]%0A%0ANOTE: Don't forget to add the time options after the command.%0A%0ARemindMe!)|[^(Your Reminders)](http://np.reddit.com/message/compose/?to=RemindMeBot&amp;subject=List Of Reminders&amp;message=MyReminders!)|[^(Feedback)](http://np.reddit.com/message/compose/?to=RemindMeBotWrangler&amp;subject=Feedback)|[^(Code)](https://github.com/SIlver--/remindmebot-reddit)|[^(Browser Extensions)](https://np.reddit.com/r/RemindMeBot/comments/4kldad/remindmebot_extensions/) |-|-|-|-|-|-| This is great. Thanks! So, just assuming a fund happened to average out to libor plus 50 for a given year, would applying that rate to the notional value of the index swaps provide a reasonable estimate of the drag an ETF investor would experience due to the cost associated with the index swaps?  For instance, applying this to the hypothetical I linked to in the original question, they assumed fund assets of $100M with 2x leverage achieved through $85M of S&amp;P500 stocks, $25M of S&amp;P500 futures, and a notional value of the S&amp;P500 swaps at $90M. So the true costs to an ETF investor would be: expense ratio + commissions on the $85M of S&amp;P500 holdings + costs associated with $25M of futures contracts + costs associated with the $90M of swaps? And the costs associated with the $90M of swaps might be roughly libor plus 50? "First, what structure does your index fund have?  If it is an open-end mutual fund, there are no bid/ask spread as the structure of this security is that it is priced once a day and transactions are done with that price.  If it is an exchange-traded fund, then the question becomes how well are authorized participants taking advantage of the spread to make the fund track the index well?  This is where you have to get into the Creation and Redemption unit construct of the exchange-traded fund where there are ""in-kind"" transactions done to either create new shares of the fund or redeem out shares of the fund.  In either case, you are making some serious assumptions about the structure of the fund that don't make sense given how these are built. Index funds have lower expense ratios and are thus cheaper than other mutual funds that may take on more costs.  If you want suggested reading on this, look at the investing books of John C. Bogle who studied some of this rather extensively, in addition to being one of the first to create an index fund that became known as ""Bogle's Folly,"" where a couple of key ones would be ""Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor"" and ""Bogle on Mutual Funds: New Perspectives for the Intelligent Investor."" In the case of an open-end fund, there has to be a portion of the fund in cash to handle transaction costs of running the fund as there are management fees to come from running the fund in addition to dividends from the stocks that have to be carefully re-invested and other matters that make this quite easy to note.  Vanguard 500 Index Investor portfolio(VFINX) has .38% in cash as an example here where you could look at any open-end mutual fund's portfolio and notice that there may well be some in cash as part of how the fund is managed.  It’s the Execution, Stupid would be one of a few articles that looks at the idea of ""tracking error"" or how well does an index fund actually track the index where it can be noted that in some cases, there can be a little bit of active management in the fund. Just as a minor side note, when I lived in the US I did invest in index funds and found them to be a good investment.  I'd still recommend them though I'd argue that while some want to see these as really simple investments, there can be details that make them quite interesting to my mind. How is its price set then? The price is computed by taking the sum value of all the assets of the fund minus the liabilities and divided by the number of outstanding shares.  The price of the assets would include the closing price on the stock rather than a bid or ask, similar pricing for bonds held by the fund, derivatives and cash equivalents.  Similarly, the liabilities would be costs a fund has to pay that may not have been paid yet such as management fees, brokerage costs, etc. Is it a weighted average of all the underlying stock spreads, or does   it stand on its own and stems from the usual supply & demand laws ? There isn't any spread used in determining the ""Net Asset Value"" for the fund.  The fund prices are determined after the market is closed and so a closing price can be used for stocks. The liabilities could include the costs to run the fund as part of the accounting in the fund, that most items have to come down to either being an asset, something with a positive value, or a liability, something with a negative value. Something to consider also is the size of the fund.  With over $7,000,000,000 in assets, a .01% amount is still $700,000 which is quite a large amount in some ways." Your link is pointing to managed funds where the fees are higher, you should look at their exchange traded funds; you will note that the management fees are much lower and better reflect the index fund strategy. Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus.  Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder.   In the case of QQQ, it certainly will have dividend income as it approximates a large stock index.  The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash.  (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value.  The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line.  This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV. "When you invest in an S&P500 index fund that is priced in USD, the only major risk you bear is the risk associated with the equity that comprises the index, since both the equities and the index fund are priced in USD. The fund in your question, however, is priced in EUR. For a fund like this to match the performance of the S&P500, which is priced in USD, as closely as possible, it needs to hedge against fluctuations in the EUR/USD exchange rate. If the fund simply converted EUR to USD then invested in an S&P500 index fund priced in USD, the EUR-priced fund may fail to match the USD-priced fund because of exchange rate fluctuations. Here is a simple example demonstrating why hedging is necessary. I assumed the current value of the USD-priced S&P500 index fund is 1,600 USD/share. The exchange rate is 1.3 USD/EUR. If you purchase one share of this index using EUR, you would pay 1230.77 EUR/share:  If the S&P500 increases 10% to 1760 USD/share and the exchange rate remains unchanged, the value of the your investment in the EUR fund also increases by 10% (both sides of the equation are multiplied by 1.1):  However, the currency risk comes into play when the EUR/USD exchange rate changes. Take the 10% increase in the price of the USD index occurring in tandem with an appreciation of the EUR to 1.4 USD/EUR:  Although the USD-priced index gained 10%, the appreciation of the EUR means that the EUR value of your investment is almost unchanged from the first equation. For investments priced in EUR that invest in securities priced in USD, the presence of this additional currency risk mandates the use of a hedge if the indexes are going to track. The fund you linked to uses swap contracts, which I discuss in detail below, to hedge against fluctuations in the EUR/USD exchange rate. Since these derivatives aren't free, the cost of the hedge is included in the expenses of the fund and may result in differences between the S&P500 Index and the S&P 500 Euro Hedged Index.  Also, it's important to realize that any time you invest in securities that are priced in a different currency than your own, you take on currency risk whether or not the investments aim to track indexes. This holds true even for securities that trade on an exchange in your local currency, like ADR's or GDR's. I wrote an answer that goes through a simple example in a similar fashion to the one above in that context, so you can read that for more information on currency risk in that context.  There are several ways to investors, be they institutional or individual, can hedge against currency risk. iShares offers an ETF that tracks the S&P500 Euro Hedged Index and uses a over-the-counter currency swap contract called a month forward FX contract to hedge against the associated currency risk. In these contracts, two parties agree to swap some amount of one currency for another amount of another currency, at some time in the future. This allows both parties to effectively lock in an exchange rate for a given time period (a month in the case of the iShares ETF) and therefore protect themselves against exchange rate fluctuations in that period.  There are other forms of currency swaps, equity swaps, etc. that could be used to hedge against currency risk. In general, two parties agree to swap one quantity, like a EUR cash flow, payments of a fixed interest rate, etc. for another quantity, like a USD cash flow, payments based on a floating interest rate, etc. In many cases these are over-the-counter transactions, there isn't necessarily a standardized definition.  For example, if the European manager of a fund that tracks the S&P500 Euro Hedged Index is holding euros and wants to lock in an effective exchange rate of 1.4 USD/EUR (above the current exchange rate), he may find another party that is holding USD and wants to lock in the respective exchange rate of 0.71 EUR/USD. The other party could be an American fund manager that manages a USD-price fund that tracks the FTSE. By swapping USD and EUR, both parties can, at a price, lock in their desired exchange rates.  I want to clear up something else in your question too. It's not correct that the ""S&P 500 is completely unrelated to the Euro."" Far from it. There are many cases in which the EUR/USD exchange rate and the level of the S&P500 index could be related. For example: Troublesome economic news in Europe could cause the euro to depreciate against the dollar as European investors flee to safety, e.g. invest in Treasury bills. However, this economic news could also cause US investors to feel that the global economy won't recover as soon as hoped, which could affect the S&P500.  If the euro appreciated against the dollar, for whatever reason, this could increase profits for US businesses that earn part of their profits in Europe. If a US company earns 1 million EUR and the exchange rate is 1.3 USD/EUR, the company earns 1.3 million USD. If the euro appreciates against the dollar to 1.4 USD/EUR in the next quarter and the company still earns 1 million EUR, they now earn 1.4 million USD. Even without additional sales, the US company earned a higher USD profit, which is reflected on their financial statements and could increase their share price (thus affecting the S&P500). Combining examples 1 and 2, if a US company earns some of its profits in Europe and a recession hits in the EU, two things could happen simultaneously. A) The company's sales decline as European consumers scale back their spending, and B) the euro depreciates against the dollar as European investors sell euros and invest in safer securities denominated in other currencies (USD or not). The company suffers a loss in profits both from decreased sales and the depreciation of the EUR.  There are many more factors that could lead to correlation between the euro and the S&P500, or more generally, the European and American economies. The balance of trade, investor and consumer confidence, exposure of banks in one region to sovereign debt in another, the spread of asset/mortgage-backed securities from US financial firms to European banks, companies, municipalities, etc. all play a role.  One example of this last point comes from this article, which includes an interesting line: Among the victims of America’s subprime crisis are eight municipalities in Norway, which lost a total of $125 million through subprime mortgage-related investments. Long story short, these municipalities had mortgage-backed securities in their investment portfolios that were derived from, far down the line, subprime mortgages on US homes. I don't know the specific cities, but it really demonstrates how interconnected the world's economies are when an American family's payment on their subprime mortgage in, say, Chicago, can end up backing a derivative investment in the investment portfolio of, say, Hammerfest, Norway." "[Wrong](http://www.cnbc.com/id/44516166/Are_Hedge_Fund_Fees_Justified)  ""hedge fund managers were asked to justify their standard two percent management, and twenty percent performance fees."" 9/14/2011  [Wrong #2](http://www.bloomberg.com/news/2011-09-07/wealthy-investors-keep-paying-hedge-fund-fees-even-with-anemic-returns.html) 9/6/2011  ""Wealthy investors who put money in hedge funds face high fees, usually a 2 percent management fee and a 20 percent performance fee""" Google Finance and Yahoo Finance have been transitioning their API (data interface) over the last 3 months. They are currently unreliable. If you're just interested in historical price data, I would recommend either Quandl or Tiingo (I am not affiliated with either, but I use them as data sources). Both have the same historical data (open, close, high, low, dividends, etc.) on a daily closing for thousands of Ticker symbols. Each service requires you to register and get a unique token. For basic historical data, there is no charge. I've been using both for many months and the data quality has been excellent and API (at least for python) is very easy! If you have an inclination for python software development, you can read about the drama with Google and Yahoo finance at the pandas-datareader group at https://github.com/pydata/pandas-datareader. "just curious what qualifies this as a ""hedge fund"".  is it structured as an LLC?  are they charging Apple 2%/20% fees?  are they shorting or using derivatives or leverage to manage risk or amplify returns?  are they employing sophisticated investment strategies?  are they managing funds for outside investors?  sounds to me like a standard cash management and tax avoidance operation of a (very large) corporation that somebody is calling a ""hedge fund"" to claim it is the world's largest.  I'm sure most major corporations are running something similar to this and nobody calls them hedge funds." "This is the best tl;dr I could make, [original](http://www.aei.org/publication/warren-buffett-wins-1m-bet-made-a-decade-ago-that-the-sp-500-stock-index-would-outperform-hedge-funds/) reduced by 91%. (I'm a bot) ***** &gt; MP: Specifically, Buffett offered to bet that over a ten-year period from January 1, 2008 to December 31, 2017, the S&amp;P 500 index would outperform a portfolio of funds of hedge funds when performance is measured on a basis net of fee.  &gt; A fund that tracks the S&amp;P 500 fund might have an expense ratio of as little as 0.02%. MP: The chart above shows the annual returns on the S&amp;P 500 index and the average annual returns on a comprehensive index of thousands of hedge funds maintained by Barclay over the period of Buffett&amp;#039;s bet: From 2008 through August of this year.  &gt; Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/71a3oo/warren_buffett_wins_1m_bet_made_a_decade_ago_that/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~213478 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **fund**^#1 **hedge**^#2 **index**^#3 **bet**^#4 **fee**^#5"