Talk:Hedge fund/Archive 2

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Definition of hedge fund

I think this article has become a bit outdated given the proliferation of hedge fund managers offering registered products and traditional registered managers offering hedge fund strategies. Also the majority of hedge fund manager assets are now in directional strategies, calling into question the absolute return characteristic.

I suggest addressing explicitly in the introduction that different authors use the term "hedge fund" in different ways. There are distinctions between public and private funds, benchmarked and absolute return funds, traditional versus leveraged or high frequency funds, fixed fee versus performance fee and open-end versus closed-end, ETFs and other traded funds. Everyone agrees an open-end private fund that uses leverage and shorting with an absolute return goal and a large performance fee is a hedge fund, while a registered long-only fund with a benchmarked goal and a fixed fee is not. I don't think there's sufficient consensus on usage to categorize all the hybrid funds. Even if there were consensus, it would not be accurate for historical usages. Therefore, I think we should note the five distinctions and go on from there. Different parts of the article apply to different distinctions among funds.

If no one disagrees, I'll take a crack at that (or anyone else can). If anyone disagrees, please speak up.

AaCBrown (talk) 00:33, 1 April 2012 (UTC)

AaCBrown, I am curious what specifically are the distinctions you woud seek to include. The introduction is already fairly long, though accuracy is important, too. Perhaps clarifications could be included in the "Strategies" section? I'm interested to discuss what you have in mind. Bryant Park Fifth (talk) 17:36, 2 April 2012 (UTC)

Simple: have a section titled "Intermediate forms" or something, and in it define a full-bore hedge fund, define a vanilla 'fund', then note that there are in-between things and list some of them. Wildfowl (talk) 23:43, 2 April 2012 (UTC)

Reply to Bryant Park Fifth and Wildfowl

An "intermediate forms" section would be appropriate, in my opinion, if there were a lot of pure hedge funds and a few intermediate forms. But it's hard to find large pure hedge funds anymore, which I think makes the definition confusing. Moreover, the article itself contains sections that are relevant to certain definitions and not others.

The first sentence is basically the definition of a private fund, then the rest of the paragraph describes characteristics that would exclude things like private equity funds, CTAs and sovereign wealth funds. That's one way to define a hedge fund, by registration status, investor base and instruments traded.

The next paragraph is confusing. It describes open-end funds in general, but then makes reference to "invest" and "withdraw" which suggests a partnership, as opposed to an open-end fund where investors buy and sell shares instead. Older hedge funds were usually partnerships, today most are LLCs. The intent here, I think, is to distinguish a hedge fund from ETFs, REITs and closed-end funds. So this is definition by legal structure.

The third paragraph describes hedge fund strategies and fee structures. This is a third way to define the funds.

The fourth paragraph goes back to the first, definition by registration status.

The article itself deals with all these definitions. That is, in some places it discusses private funds, in other places funds that employ leverage and short-selling and in other places offshore partnerships.

I suggest replacing the first three paragraphs of the article with something like:

The term hedge fund is used to describe a variety of commingled investment vehicles. Historically, the term referred to private investment partnerships open to small groups of wealthy individual investors that engaged in aggressive investment techniques including leverage, short-selling and rapid turnover. Funds usually attempted to deliver returns uncorrelated with the stock or bond markets, and the managers usually were paid a variable fee based on fund performance. Most funds were secretive about their positions. In most developed countries, funds offered to the public were not allowed to do these things, so hedge funds typically took advantage of registration exemptions. These exemptions required them to organize in offshore domiciles (such as the Cayman Islands), to limit their number and type of investors and avoid to publicity.

Beginning around 1990, the hedge fund industry began to grow rapidly and evolve in form. Liberalization of registration rules has allowed hedge funds to accept more investors and even offer registered products like UCITS funds in Europe and public mutual funds in the United States, at the same time traditional registered managers have offered hedge-fund like products. Institutional investment in hedge funds has far outpaced investment from wealthy individuals. Hedge funds added benchmarked strategies and products with less aggressive investment techniques and less reliance on performance fees. Restrictions on hedge fund public communications have also loosened and some of the largest fund managers are now public companies. The partnership structure is less commmon, most hedge funds are limited liabilities corporations. Regulators have demanded significantly increased transparency from hedge funds over a certain size, although the disclosure requirements still fall short of those for a registered fund. Today it can be difficult to distinguish between a large hedge fund manager and a traditional institutional money manager.

When different authors use the term hedge fund, they may have in mind any one or combination of:

• A private, unregistered fund versus a public registered one
• An absolute return strategy versus a benchmarked one
• A manager relying mostly on performance fees versus one relying on fixed fees
• A fund with a small number of wealthy individuals as investors versus public funds with many investor or funds with large institutional investors
• A fund organized offshore versus a fund domiciled in a major developed market
• A fund using aggressive investment techniques versus a traditional fund with limited or no leverage, short-selling or derivatives, with only low or moderate turnover
• A secretive fund relying on exemptions to minimize discloure versus a fund that makes full public disclosure

Of course, all these statements will have to be sourced, but I have no doubt we could find some up-to-date authoritative summaries that give more or less this information (it might have to be rewritten as a result, I just wrote this off the top of my head).

AaCBrown (talk) 14:00, 3 April 2012 (UTC)

Well, I'm afraid I don't think this is a good idea. Of most importance, it does not express the basic facts of what hedge funds are as clearly as the current version. The introduction of this article has been discussed by a range of editors in the past year, and I don't see why it should be started again from scratch. I'm also concerned that your proposal reads more like an essay: it's more opinion than description, and focuses more on what you say hedge funds used to be than what they are now. Maybe the history section is a better place for this kind of information. If you think there are critical gaps, and you have sources to support your changes, that could certainly help improve the article. --Bryant Park Fifth (talk) 16:05, 4 April 2012 (UTC)

Some thoughts:

• Maybe hedge funds were more well-defined in the past. Wikipedia is for capturing how things were in the past as well as how they are now.
• 'Hedge fund' has always been fairly ill-defined, hasn't it? You can only have a list of checkboxes, and see how many of them are ticked/checked for any given fund. Maybe the list above of ideas about what a hedge fund is, is that checkbox list?
• I would actually like to see that list incorporated into the article in some way that doesn't cause too much disruption.

Wildfowl (talk) 21:30, 4 April 2012 (UTC)

I think we should acknowledge in the article that there are shades of grey in between categories of fund, but I would be strongly against redefining hedge funds, or making significant changes to the introduction to make that point. While many managers may now manage more than one type of fund, I think it is still fairly easy to identify a very large majority of their funds as either "hedge fund" or "not hedge fund". This article is focused on the funds, not the fund managers. I also think that, while more hybrid types of funds were increasingly common in 2008/2009 and even 2010, this trend seems much less pronounced now, and it would be inaccurate to over-egg it.

I think that describing what a hedge fund is should still be about techniques (more than strategy), regulation, open-endedness and performance fees, because those factors are still how the vast majority of people would identify a hedge fund. That isn't to say that the intro couldn't be improved in terms of structure and clarity, because it could be, but I think it's fundamentally aimed the right way. Westmorlandia (talk) 10:06, 24 April 2012 (UTC)

SEC Add

I cant tell reading the section about govt regulation where the SEC presently stands.

As I understand it , the SEC lost a case litigating whether or not SEC rules were ok requiring hedge funds to be registered with the SEC ; AND , just yesterday, the SEC stated it would not appeal that federal court decision.

SO, the SEC does NOT require hedge funds presently to be registered and can NOT by that recent federal court case.

See

• SEC wont appeal federal court overturning SEC's hedge fund rules

,,,,bigwilly2hedge,,,,

When did you write this? Please can you sign your posts? For the record, the SEC lost the court case to make managers register a few years ago, but then the law was changed so that they do, after all, have to register. Westmorlandia (talk) 14:29, 29 August 2012 (UTC)

Proposed updated figures for introduction and History

{{edit request}} In the past, an editor using the handle Bryant Park Fifth has posted on this Talk page with suggestions to improve this article, on behalf of the Managed Funds Association. During this time, I had played a background role, providing advice and support, and starting here I'll be taking over that role in offering suggestions and resources. Due to my conflict of interest, I will refrain from making direct edits to the article, but instead will propose changes here for uninvolved editors to review, and implement if there is agreement.

The changes I have to propose here are fairly simple: there are a number of figures in this article which are outdated; below, I've outlined some proposed edits to help bring the article's introduction and recent history up-to-date.

• The estimated size of the hedge fund industry stated in the article's introduction is now out-of-date; the penultimate intro graf now reads:

The estimated size of the global hedge fund industry is US$1.9 trillion.

I propose updating this using reported figures from April 2012:

As of April 2012, the estimated size of the global hedge fund industry is US$2.13 trillion.

• At the end of the History section, there are a number of figures given from end of 2010 / start of 2011. Numbers now exist for end of 2011 / start of 2012. To bring this up to date, I would like to propose a new wording for the final paragraph, adding more recent information and removing that which is out of date.

Alas, this removes some information—the names of some of the largest funds—leaving only the single largest, Bridgewater. The updated source simply doesn't list the others, but in any case Bridgewater is much larger than its nearest rivals, so it is logical to mention alone. Likewise, I suggest removing old figures because, while historically accurate, the section would become unwieldy if it listed all such past figures.

The following is intended to replace the complete final paragraph of the History section:

Total assets under management then rebounded and in April 2011 were estimated at almost $2 trillion. As of February 2011, 61% of worldwide investment in hedge funds comes from institutional sources. At the end of 2011, the 241 largest hedge fund firms in the United States held $1.335 trillion and the two largest firms were Bridgewater Associates and JPMorgan. The world's largest hedge fund manager in 2011, Bridgewater Associates, had $120 billion under management as of 1 March 2012. In April 2012, the hedge fund industry reached a record high of US$2.13 trillion total assets under management.

References

If any editors watching this page are able to make these edits, it would be appreciated. I'll keep an eye on the page for any questions. Cheers, WWB Too (talk) 13:24, 19 June 2012 (UTC)

Sounds OK, but why not retain the list of names of some of the largest funds? It's not too out of date. It might sound more like an advert if only the biggest one was listed. Wildfowl (talk) 22:30, 19 June 2012 (UTC)

Simple enough: I couldn't find updated data for the other firms. As for any impression of advertisement, FWIW, MFA membership counts individuals from all of the firms now named—no intention of discrimination on their part, nor mine. You are right, however, that it's not terribly out-of-date: an alternative would be to update the rest of the paragraph, but leave that sentence alone. What do you think? WWB Too (talk) 01:37, 20 June 2012 (UTC)

I think leave that sentence in place – it's useful information – probably at the end of the paragraph. Otherwise OK with me. What do other people think? Wildfowl (talk) 19:48, 20 June 2012 (UTC)

OK, I've rewritten the suggested final paragraph for the History section, adding back the list of largest hedge funds in 2011. In that sentence, I've also clarified that the figures are from June 30, 2011 and are based on the funds' worldwide assets. In addition, I've corrected the figure for assets under management for Bridgewater in 2012—my error—as I had confused the total amount held by the company with the amount held by the hedge fund. The correct number is $70 billion, not $120 billion. I've also removed the detail of the two largest firms at the end of 2011, since this was duplicative of the list re-added:

Total assets under management then rebounded and in April 2011 were estimated at almost $2 trillion. As of February 2011, 61% of worldwide investment in hedge funds comes from institutional sources. As of June 30, 2011, the largest hedge funds by worldwide assets were Bridgewater Associates (US$58.9 billion), Man Group (US$39.2 billion), Paulson & Co. (US$35.1 billion), Brevan Howard (US$31 billion), and Och-Ziff (US$29.4 billion). At the end of that year, the 241 largest hedge fund firms in the United States held $1.335 trillion. The world's largest hedge fund manager in 2011, Bridgewater Associates, had $70 billion under management as of 1 March 2012. In April 2012, the hedge fund industry reached a record high of US$2.13 trillion total assets under management.

Wildfowl, your thoughts on this version? As well, if anyone else is watching this page, I invite their comment. And worth noting, once this is resolved, I've got a few more suggestions for updating figures in the article. Cheers, WWB Too (talk) 17:40, 26 June 2012 (UTC)

Good work. This by Salmon may be of help, though you don't seem to have adopted the freshly debunked 5 trillion figure anyway [1]. TheSoundAndTheFury (talk) 18:22, 26 June 2012 (UTC)

Thanks—and yes, the $5T figure seems highly unlikely. Fury, per the {{request edit}} tag I affixed to the start of this section, I've actually prepared this on behalf of an industry association (also mentioned up top, MFA) so I'm very reluctant to make direct edits. If you're willing, that would be awesome. Cheers, WWB Too (talk) 20:52, 26 June 2012 (UTC)

WWB Too, it seemed OK to me so I put it in the article; feel free to check it. Wildfowl (talk) 21:36, 27 June 2012 (UTC)

Thanks, Wildfowl, I really appreciate it. One question: how about the updated sentence I suggested for the introduction, discussed before the longer paragraph? It actually uses one of the citations from the section just implemented, so if you simply add <ref name=Chung/> to the end of the sentence, that should do it. WWB Too (talk) 21:55, 27 June 2012 (UTC)

I dropped the ball on the other one; I updated this one. You get paid for this or something, WWB? Sounds like a good gig. The rest of us bums write this stuff for free. TheSoundAndTheFury (talk) 22:18, 27 June 2012 (UTC)

Heh, I do edit on a volunteer basis using my personal account; from this one I help clients improve articles of interest to them without running afoul of COI guidelines. And I will have a couple more updates to suggest, before the week is out, related to a few more outdated figures. Also, thanks! WWB Too (talk) 22:40, 27 June 2012 (UTC)

Additional changes to suggest

{{edit request}}

Following my note above, I have some additional updates to suggest. These specifically relate to the Regulation section of the article, where the wording regarding Dodd-Frank needs to be updated to reflect that these rules are now in effect, rather than due to come into effect.

• In U.S. regulation, the wording should be updated from...

hedge fund advisers with at least $150,000,000 in assets under management will be required to register with the SEC as of March 30, 2012, while smaller advisers will be subject to state registration

...to:

hedge fund advisers with at least $150,000,000 in assets under management are required to register with the SEC as of March 30, 2012, while smaller advisers are subject to state registration

I've found this source which could be added, if a new citation is needed:

<ref>{{cite news |title=Hedge funds register, wait for SEC to visit |first1=Svea |last1=Herbst-Bayliss |first2=Katya |last2=Wachtel |url=http://www.reuters.com/article/2012/03/28/us-hedgefunds-registration-idUSBRE82R1FH20120328 |work=Reuters |date=28 March 2012 |accessdate=2 July 2012}}</ref>

• In Dodd-Frank, the sentence...

In addition to US hedge funds, many overseas funds with more than 15 US clients and investors, and managing more than $25 million for these clients, will also have to register with the SEC by March 30, 2012

...should be updated to:

In addition to US hedge funds, many overseas funds with more than 15 US clients and investors, and managing more than $25 million for these clients, are required to register with the SEC as of March 30, 2012

This release from the SEC can be used as a citation, if needed:

<ref>{{cite web |url=http://www.sec.gov/news/press/2011/2011-133.htm |title=SEC Adopts Dodd-Frank Act Amendments to Investment Advisers Act |date=22 June 2011 |work=Securities and Exchange Commission |accessdate=2 July 2012}}</ref>

If anyone is able to help make these changes, please do. If there are any questions about these suggestions, I'll be happy to respond. Cheers, WWB Too (talk) 18:40, 2 July 2012 (UTC)

Extraordinarily non-controversial changes. I implemented them, though I made the second past tense because we're in July now and that was March. TheSoundAndTheFury (talk) 18:11, 6 July 2012 (UTC)

Thank you! And your additional tense change makes even more sense. Cheers, WWB Too (talk) 19:34, 6 July 2012 (UTC)

Hedge fund managers' pay

Should there not be some information about hedge fund managers' pay in this article? They are after all the most highly remunerated people on the planet. Wildfowl (talk) 22:37, 19 June 2012 (UTC)

You're right. In fact, in Hugh Hendry's latest newsletter he referred to money management being one of the best returns on intellectual capital on the planet. The "Fee structure" part of the article now is pretty good in that it outlines the basic fee structure situation; it could do much better with some numbers and scenarios where people have made bundles of money (I'm thinking Michael Lewis character billionaires here.) We write an encyclopedia, sure, but including some anecdotes would be a good thing, right? TheSoundAndTheFury (talk) 18:37, 6 July 2012 (UTC)

I was thinking more of e.g. Forbes: The 40 Highest-Earning Hedge Fund Managers. The amounts are staggering. These must be the most highly remunerated people ever on earth! It seems extraordinary not to give an indication of how much the top managers earn in an article of 14,000 words. Perhaps a little section including a table listing the top 10 earners? I might do that if I get the time. Wildfowl (talk) 20:18, 6 July 2012 (UTC)

Done. Wildfowl (talk) 21:23, 12 July 2012 (UTC)

Hi there Wildfowl, I realize I'm late to this topic, but I have some additional suggestions here, if you're willing to consider. First of all, I wonder if the Debates and controversies section is the right place for this information: as presented here, it is not really a point of debate nor a controversy. I'd suggest moving the paragraph into the Fees section, which could then be renamed to Fees and remuneration, if that seems appropriate?

Also, there are some points you've included that I'd like to query:

• In the first sentence, the use of "extremely well remunerated" doesn't strike me as an encyclopedic phrasing. More to the point, there's no context for the statement—i.e. "compared to what?"—especially as some hedge fund managers may seem not so well paid compared to some well-compensated CEOs.
• The statement that "most of the financiers on Forbes' list were hedge fund managers is misleading, since it suggests that this group made up a large proportion of the billionaires that Forbes listed. However, the full list included 1300 individuals, of which only 36 (not 26) are hedge fund managers. This isn't a significant proportion at all.
• Similarly, it doesn't seem significant that 54 out of the 1000 people on the Sunday Times rich list were hedge fund managers.

I'd like to suggest removing all three of these statements from the section.

Worth noting is that hedge fund managers' earnings are not disclosed, so lists in publications such as Forbes and Absolute Return use rough estimates based on informations such as what they believe a fund charges as its management fees and how much capital they think a manager has invested in their fund. In comparison, the "rich lists", like that published by the Sunday Times tend to look at just at net worth, not earnings, which further confuses the issue.

All of that said, I do mean to be constructive and not just to nitpick, so I've drafted an updated version of the section, which I'd like to propose as a replacement (as a new final paragraph in a renamed Fees and remuneration section). This adds details about what hedge fund managers' pay is based on, and how managers' earnings are estimated by publications. I've also removed the statements noted above. I think this gives a more rounded view of hedge fund managers' remuneration:

Hedge fund managers' compensation is based on the fees charged to investors and also the fund's profits. Fund managers and employees may also reinvest much of their earnings into the fund they operate. Funds do not tend to report compensation. Lists published of the amounts earned by top managers use rough estimates based on factors such as how much fees a fund charges and the estimated capital the manager has invested in their fund. According to Forbes, in 2011, the top hedge fund manager ranked by compensation earned $3,000m, the tenth earned $210m and the thirtieth earned $80m.

References

If you (or anyone else on this page) would like to make the changes I suggest, please do. Any comments or questions are welcome. Cheers, WWB Too (talk) 19:17, 26 July 2012 (UTC)

WBB Too; this is getting worryingly like PR. I don't know if there is a rule that says "Wikipedia is not a PR agency", but there ought to be. If we are trying to cover this topic with some degree of comprehensiveness, there should be something about the future social consequences of these unprecedentedly huge sums appearing in private pockets; the emergence of an elite largely above the law and everything else; the consequences when this wealth is inherited, etc. I will do some research and get back. (Everybody else is welcome to join in here.) Wildfowl (talk) 10:52, 27 July 2012 (UTC)

By the way,

• How come $3,000m in one year isn't "extremely well remunerated"? How come that is unencyclopedic? Remuneration like this has never remotely been seen before.
• "Most of the financiers on Forbes World's Billionaires list for 2010 were hedge fund managers" (my emphasis) is a correct statement, if the source cited is correct.
• "Among the richest 1,000 people in the United Kingdom, 54 were hedge fund managers ..." doesn't do the pro-hedge fund case any harm as far as I can see. I can't see why there could be any objection to it.

Wildfowl (talk) 11:19, 27 July 2012 (UTC)

I think it's perfectly fine to note how much money these people make, simply because the amounts are large and notable. If we want to suggest that there is something problematic about this, we of course would need sources - and that kind of analysis would be interesting. It would also be interesting to know whether this is really unprecedented in human history, or there has been a trajectory of wealth-accumulation and creation in modernity that this fits into.

I don't see what it's got to do with "an elite largely above the law," though. I think WWB Too's point is that this doesn't hold for all of them. There are some amazing success stories. But do you know how many of these operations fail, or blow up? The chance to make such huge profits goes along with the threat of losing them. And when these people screw up, investors take their money out of the fund and the money manager finds something else to do. It's a highly competitive industry. The nuance of all this shouldn't be lost. Wildfowl, you'd be interested in a book called "More Money Than God." The villains are more the big IBs like Goldman; hedge funds are entrepreneurial and accountable, and their net effect is to create efficiencies in the operation of the markets. In my view the fact that some managers make billions of dollars is notable and should be explained - accurately and with precision, like we would treat any other topic. TheSoundAndTheFury (talk) 14:27, 27 July 2012 (UTC)

Wildfowl, my objection is based on what I consider germane to an encyclopedia article, not that the information I object to is in any way "anti-hedge fund". Let me explain my thinking a bit more:

• For a start, I can explain a bit better about why I think "extremely well remunerated" is not appropriate as now written. While hedge fund managers can earn billions, "extremely well remunerated" is a value judgment that should be attributed, per WP:SUBSTANTIATE. While I am certain such a source could be located, much better still would be a verified statement that specifies how well-paid hedge managers are compared to other professions, such as "Out of TK professions, hedge fund managers had the highest average earnings in 2011". In short: it would be better either to attribute opinionated material to a reliable source, or cite figures and let that speak for itself.

• Regarding the other two statements, I realize that the source for the first one does include the word "financiers", as does the statement you wrote. My concern is that without including: the total number of people on the list; the total number of financiers; and the number of hedge fund managers, the statement can give a false impression that hedge fund managers dominated the list of billionaires, which is not the case. The question with this (and with the second statement about the Times list) is not whether it is "pro-hedge fund" but whether it is useful information.

TheSoundAndTheFury, I agree with the points you make above and I'd be interested in your thoughts on the specific questions Wildfowl asks as well, if you wouldn't mind weighing in. I think the changes I suggest above could improve the section but I'd prefer for other editors to review them before making any edits. Cheers, WWB Too (talk) 19:45, 27 July 2012 (UTC)

On the two key points of apparent contention: I think of course that characterizations of remuneration (i.e. "extremely well paid" etc.) should be sourced; and of course information about remuneration should be provided with proper context as you indicated. These two demands are simply the demands of fair research and Wikipedia's content policies. I'm in a terrible rush today but if no one else does it I can compare what is on the page now with your suggestions and the problems you point out, and the sources, to improve the completeness of presentation and so on. TheSoundAndTheFury (talk) 20:20, 27 July 2012 (UTC)

Hi guys, I have tried to address your concerns: I've moved the piece and changed the wording as well as adding in a couple more citations. Let me know if you have any comments. You guys seem very touchy about this topic. Why is that? Wildfowl (talk) 21:52, 29 July 2012 (UTC) (P.S. I have no connections whatsoever with hedge funds)

Oh, I didn't realize that. Did I seem touchy? I have no affiliations with hedge funds, but I've read about them, and just generally I think we should do our best to be responsible stewards of information. So we should just do our best to make the pages fair and accurate - that's what motivated my remarks above. All that was in line with content policies, right? I think your change was mostly fine. I can come back to this later when more time. TheSoundAndTheFury (talk) 03:55, 31 July 2012 (UTC)

Similarly to TheSoundAndTheFury, I certainly don't inted to come across as sensitive, only detail-oriented. And while I do work with the Managed Funds Association, I mean for all of my suggestions to be consistent with improving Wikipedia as an encyclopedia. To that end, I agree it is useful to have some information here about hedge fund managers' earnings, but we have to make sure that information is accurate, neutral and accessible.

Unfortunately, I have to disagree with TheSoundAndTheFury and say that I'm not all that keen on the latest changes. Just on a style note, quotes should not be in italics. More importantly, I think that quoting at length from one article, more an entertainment / editorial piece than a straight report, and with such emphasis on hyperbole, introduces potential bias.

So that I'm offering something constructive here, I'm working on finding figures for average salaries in the hedge fund industry, to give context to the top managers' earnings already included. I'm also looking for a more authoritative source that states that top hedge fund managers are highly paid. Once I've got these together, I'll post them here for you to look over. I also still think it would be helpful to include the information I posted above, regarding how the earnings are calculated. Thoughts welcome. WWB Too (Talk · COI) 15:45, 1 August 2012 (UTC)

"Just on a style note, quotes should not be in italics. More importantly, I think that quoting at length from one article, more an entertainment / editorial piece than a straight report, and with such emphasis on hyperbole, introduces potential bias." Done. Wildfowl (talk) 22:44, 1 August 2012 (UTC)

Here is some substantial criticism of the hedge fund industry - using some serious data and analysis performed by a money manager. Links: [2], [3], [4]. Quotes include "“If all the money that’s ever been invested in hedge funds had been put in Treasury bills instead, the results would have been twice as good ... What this means is that many of the investors who have been paying hefty fees to top hedge fund managers would have done much better had they simply shoved all their money into risk-free short-term government securities, even though these returned just 2.3 per cent a year between 1998 and 2010. ... To understand how this changes the picture, consider what happened to cumulative returns when markets crashed in 2008. Because more and more people had poured money into hedge funds over the preceding decade – assets under management increased from $143bn to $2.1tn – the $450bn-odd vaporised in that single year, Lack maintains, probably “destroyed all the value that hedge funds [had] ever created”.... But the biggest reason, predictably, is fees. Once again, Lack helpfully crunches the numbers. From 1998 to 2010, once everything is factored in, including fees paid to managers of funds of hedge funds and investment consultants, the cumulative split was just $9bn to investors versus $440bn to the managers and hangers-on. Even if you accept the industry’s argument that an otherwise adequate record of returns was undone by the 2008 meteorite strike, this still seems a crazy split. “Never in the field of human finance was so much charged by so many for so little,” is Lack’s wry comment." - sorry the order is screwed up, but there you have it. This information should be in the article (and I'll add later, just putting here for a summary, discussion). TheSoundAndTheFury (talk) 14:01, 9 August 2012 (UTC)

Paragraph on fund manager pay

Hi there, it's taken me awhile to get back around to this but I've found some details for average pay to add in here. TheSoundAndTheFury, I just saw your new comment as I was preparing this one, so I'm afraid I don't have a comment yet—but it seems that our research went in sufficiently different directions that our suggestions don't conflict. Thanks Wildfowl for trimming the quotes; however I think with the details I've found, the quotes aren't needed as the numbers provide specifics for the relevant portion of statements made. The version I've provided below:

• Removes the quotes but keeps the points that top managers tend to be highly paid
• Adds in specifics with figures for average earnings
• Updated the Forbes "World Billionaires" list details to that for 2012
• Uses Forbes itself to verify the number of people on Forbes list whose wealth derives from hedge funds, as opposed to BusinessInsider.com
• Removes the term "hedge funders" which is not a term generally used for hedge fund managers

Here's what I suggest:

Top hedge fund managers tend to be highly paid. In 2011, the average earnings for the 25 highest compensated hedge fund managers in the United States was $576 million. That year, the top manager earned $3,000m, the tenth earned $210m and the 30th earned $80m. Most hedge fund managers are much less well paid than the top 25, as earnings depend on returns made by the funds they manage. According to Absolute Return + Alpha, in 2011 the mean total compensation for all hedge fund investment professionals was $690,786 and the median compensation was $312,329. The same figures for hedge fund CEOs were $1,037,151 and $600,000, and for chief investment officers were $1,039,974 and $300,000. Of the 1226 people on the Forbes World's Billionaires list for 2012, 36 of the financiers listed "derived significant chunks" of their wealth from hedge fund management. Among the richest 1,000 people in the United Kingdom, 54 were hedge fund managers, according to the Sunday Times Rich List for 2012.

References

I think this makes the basic point that top managers are well paid, but provides more specifics to illustrate this point and also the disparity between the top managers and most hedge fund managers. If this looks good to others here, feel free to make these changes. Cheers, WWB Too (Talk · COI) 17:12, 9 August 2012 (UTC)

You've put some work into that, WBB Too. Good work! How much do you get paid for that? I am still studying it, but one thing that seems to have dropped out is the fact that hedge fund managers are at the top of the earnings tree, at least in the finance industry, being paid more even than the investment bankers. I think that point should somehow be retained, because it might have important consequences - maybe the hedgies pull up the private equity people, and maybe they pull up the investment bankers, and maybe they pull up corporate CEOs generally. What do you think? Wildfowl (talk) 21:52, 10 August 2012 (UTC) (wishing he was paid as much even as a median "hedge fund investment professional")

Glad you like it, at least on first look. I'll be looking forward to your thoughts after a closer read. I would very much like to see it replace the paragraph that quotes extensively from the BBC story; take for instance the advice of WP:QUOTE: Where a quotation presents rhetorical language in place of more neutral, dispassionate tone preferred for encyclopedias, it can be a backdoor method of inserting a non-neutral treatment of a controversial subject into Wikipedia's narrative on the subject, and should be avoided. That BBC story is rather sensational, and the quoted material is primarily rhetorical. Do you see what I mean?

Meanwhile, I'm not sure I quite follow your point about the detail "dropped out"; I don't see the claim that hedge fund managers are paid more than investment bankers in the current article. As to the point itself, certainly some are, but not all. If you had a high-quality source with some specifics on the comparison and a neutral statement to explain it, I don't see why it couldn't be included. But I also don't see why its omission should hold up the paragraph I've proposed, if it is otherwise accurate and neutral. Let me know what you think. WWB Too (Talk · COI) 19:19, 13 August 2012 (UTC)

I have incorporated some of your suggested text into the article, and removed some of the quoted content which you dislike. I am leaning over backwards to satisfy your demands, but I don't know why I should, since you are a paid editor and I am a volunteer. In reply to your complaint regarding quotations, in my opinion the quote is not rhetorical language, in the sense that it isn't an exaggeration. It may be punchy but it is not misleading. Also, it is immediately followed by a statement that puts it into context by saying "most hedge fund managers are much less well paid".

It looks as if every time I post anything in this article about hedge fund manager pay, you have to criticise it and water it down. I object to this, and it is getting time-consuming. Am I allowed to ask: what exactly is your status? Who are you being paid by and for what?

Let my recent edit be the last word on this. If not, I think arbitration should be the next step. Wildfowl (talk) 20:10, 15 August 2012 (UTC)

I owe you both an apology; we're indeed (well, most of us) volunteers, but it's good to do one's best to check in when involved in a dispute, to keep things moving. I got busy with real life, as sometimes happens. Anyway, I made some changes according to my own preferences for how the information might be presented. No objection to a revert or further tweaking (preferable I suppose). I can see WWB Too's point about not having sensationalist language in quotes, but I don't think the quotes provided really crossed the line. I don't think the policy is meant to make the encyclopedia boring, or make it so that we can only have hard numbers, which many readers would consider dull, rather than the freely-written characterizations of journalist-observers. I don't see anything wrong with creative depictions of complex matters. The reader can't be expected to just have a series of data. Characterizations, which inevitably involve language we may not always agree with, are useful for readers - of course, when it crosses the line or conflicts with the broad direction of reliable sources, it could be tendentious. Again I don't think that was the problem here. TheSoundAndTheFury (talk) 02:38, 18 August 2012 (UTC)

Hi again, TSATF and Wildfowl. This time it's my turn to apologize for the delay. I do think the paragraphs on pay have gotten considerably better. Wildfowl, I always mean to keep this a discussion and not a dispute, and I hope you'll recognize that my goal is to find a compromise. While I don't entirely agree on the current wording—yes, including the BBC quote—I realize I don't have consensus. I do have one further request, which is to make sure the information from the Forbes and Sunday Times list are properly qualified, so readers understand they are only estimates. I've prepared a couple of short sentences which I'd like to see appended to that paragraph:

Funds do not tend to report compensation. Lists published of the amounts earned by top managers use rough estimates based on factors such as how much fees a fund charges and the estimated capital the manager has invested in their fund.

References

If that looks OK, would one of you consider adding it to the article? Thanks, WWB Too (Talk · COI) 21:01, 20 August 2012 (UTC)

I have no great objection. Why don't you do it, TSATF, as the trusted party? Wildfowl (talk) 20:41, 21 August 2012 (UTC)

Done, by me (with minor amendments) as requested. Wildfowl (talk) 16:09, 29 August 2012 (UTC)

Sorry about that. Glad this was sorted. Please let me assure you both that I'm not nearly as trustworthy as I may appear. TheSoundAndTheFury (talk) 23:20, 29 August 2012 (UTC)

Thanks much, Wildfowl, I appreciate you making this edit for me, and glad we could work it out. No worries, TSATF. I'll surely have more suggestions in other sections later, and I hope you'll both be willing to consider them. Cheers, WWB Too (Talk · COI) 12:51, 30 August 2012 (UTC)

hedge fund taxation section?

It is needed.--Richard Peterson76.218.104.120 (talk) 08:21, 17 August 2012 (UTC)

What did you have in mind, Richard, and do you have sources to cite? (And, by the way, why not create an account rather than edit as an IP address? – although you don't have to if you don't want to.) Wildfowl (talk) 20:45, 21 August 2012 (UTC)

I assume that this is a reference to the taxation of carried interest, which surely needs to be added to the Controversies section. John M Baker (talk) 20:56, 28 October 2012 (UTC)

Updates to the Hedge fund structure section

{{request edit}}

Since my last request above, I have been working on research for the Hedge fund structure section. This section is nearly 1500 words with multiple subsections, yet the entire passage contains only six citations. The information outlined is generally correct, but some of the specific wording and details are misleading.

I have rewritten the entire section based on information I was able to find in reliable sources. As much as possible I have retained information in these sections and also provided some corrections and additional details, as sources allowed. My version increases the number of citations from six to 46. The draft is available in my user space:

• User:WWB Too/Hedge fund structure

As before, the changes I propose for this article are on behalf of the Managed Funds Association, who are also providing guidance on research and writing. Since I am working with the MFA, I'd prefer to not make any edits to this article myself, and instead seek consensus with other editors here to review the draft and implement it if the updated content seems reasonable.

Below, I'll briefly outline how my draft updates the Hedge fund structure section:

• The information contained in the list of "service providers" is mostly accurate, although it currently contains no citations whatsoever. My version of this passage includes citations for every entry, with text slightly edited to reflect the language in the sources. I've also added one additional category: auditors. Most funds use an independent accounting firm to audit assets, so that position should be included in the list.

The following existing sentence in the administrator entry about net asset valuation regulation outside of the U.S. is omitted because I could not find support for the claim:

Outside of the US, regulations often require this role to be taken by a third party.

Regulations differ significantly between countries and regions, and it's difficult to generalize about standard practices. In addition, I think it makes more sense to put jurisdiction-specific regulatory details in the Regulation section (which I hope to address in the coming weeks).

• The existing Domicile subsection also has no sources or references. My draft provides citations for existing claims—with slight editing for clarity and accuracy—along with additional information about offshore tax treatment.

• I have added updated and accurate figures in the Investment manager locations subsection drawn from reliable sources. I have also corrected the formatting on existing citations.

• I have added multiple citations and additional details to The legal entity, Open-ended nature, Side pockets and Listed funds subsections, and made small edits to the existing wording.

If these changes seem neutral and acceptable to other editors, I hope you will make them. I have this page watchlisted so please feel free to reply here with any questions. Cheers, WWB Too (Talk · COI) 19:40, 31 October 2012 (UTC)

I have had a quick look through and I can see nothing objectionable; in fact the number of citations has dramatically improved. Concerning "Outside of the US, regulations often require this role to be taken by a third party" (above), I would be just as happy to leave it in with a citation-needed tag. Let's wait a week or so for other comments before updating the main page. Wildfowl (talk) 21:36, 31 October 2012 (UTC)

Hi, thanks for the good words, Wildfowl. I'm not in any hurry, so let's definitely wait to see what others might have to say. About the "Outside of the US" statement, the feedback I've received was that it varies by jurisdiction, so a possible compromise may be replacing "often" with "sometimes". What do you think? WWB Too (Talk · COI) 14:36, 1 November 2012 (UTC)

It looks pretty good to me too - and thanks very much in particular for sourcing the citations. I do have a few points on the text though:

• I have never seen a hedge fund contract with an individual as its investment manager. Does this really happen? If so, does it happen often enough to mention it? I would rather remove the reference, but we should at least add "occasionally" or similar in reference to individuals, to make clear that the practice is very rare. Also, many (most?) managers aren't companies - so we could just say "firms", to be sufficiently inclusive of the different structures used.
• "Prime brokers at investment banks" is technically wrong - the bank is the prime broker. We could say: "Hedge funds depend on prime brokers to clear trades and provide leverage, often in the form of short-term financing. The prime broker may also provide custodial services for the funds assets and execution and clearing services for the hedge fund manager. Prime brokers are usually divisions of large investment banks."
• Administrator - Thinks like "operations", "administration" are a bit jargony - who knows what they mean? Also, don't all funds have auditors (even Madoff...)? Better to discuss that in the auditor section? How about this: "Hedge fund administrators carry out some of the administrative functions of a hedge fund, particularly accounting, valuation of assets, processing subscriptions and withdrawals and certain investor communications. These functions are sometimes performed by an investment manager, particularly in the United States, although this raises a conflict of interests regarding the valuation of the fund's assets which needs to be managed."
• Distributor - I'm not sure the FATCA definition is very helpful. It's a bit cluttered and probably isn't very enlightening to a layman, and I think it would be better just to say something like: "A distributor is a firm appointed by a hedge fund to market the fund to potential investors. The investment manager often carries out this role, but third party placement agents and brokers can also be appointed." The first statement is fairly plain and probably doesn't need sourcing (though it should be easy to find a source if thought necessary).
• Auditing - Lots of non-US funds use IFRS rather than US GAAP. Also, a fund doesn't technically have AUM as it doesn't manage assets - managers have AUM. So I think we should say something like "Most funds use an independent accounting firm to audit the annual financial statements of the fund, including the year-end NAV. The audit is usually performed in accordance with US generally accepted accounting principles (US GAAP) or international financial reporting standards (IFRS). Auditors may also provide tax advice to the fund."
• Domicile/Legal Entity - "Domicile" has become very US-centric on the tax issues. Most hedge funds (probably even US-managed funds) invest globally, not just in the US, so we should be more generic about the taxation of the fund. Secondly, regarding tax on the investors, we're splitting ideas between "Domicile" and "Legal Entity" and have lost clarity as a result. Because the issues are so bound together - it's all about tax structuring - I think we should actually merge these two sections, and make sure it has a generic global perspective.
• Open-ended nature - Better to change "Hedge fund shares and limited partnership interests generally do not trade..." to "Hedge fund shares and limited partnership interests are not generally traded..."

I know that isn't all entirely constructive (i.e. identifying problems but not always offering fixes), but I hope it's of some use! Westmorlandia (talk) 15:10, 1 November 2012 (UTC)

Thanks, Westmorlandia. Overall, good comments. Some I will definitely implement, other points I want to do some additional research and get back to you. Hope you don't mind if it's early next week before I have all my thoughts together? Cheers, WWB Too (Talk · COI) 20:10, 1 November 2012 (UTC)

Nice work but I also have issues with the first paragraph. Its confusing and contradictory to the average reader. I also don't think its encyclopedic to say what the topic is not. so here is my suggested version:

A hedge fund is an investment vehicle structured as a company or a partnership. The fund is managed by either an individual or a management company. This investment manager is a distinct legal entity and is separate from the actual hedge fund and its portfolio of assets. -- — Keithbob • Talk • 16:04, 2 November 2012 (UTC)

This sentence also needs some work: [As well as the investment manager, the other functions of a hedge fund are delegated to a number of other service providers.] It sounds as though the hedge fund itself is delegating but that's not possible since the HF is just a fund, not a person or a company. These items of accounting promotion etc are the responsibility of the HF manager who has to either do them in house or outsource them but either way the HF manager is the responsible party who manages those activities. Is this not correct? -- — Keithbob • Talk • 16:18, 2 November 2012 (UTC)

Also thanks for the feedback, Keithbob. I know what you mean about saying "what the topic is not"—I went back and forth about whether to include that wording. I'll take that and your other points under advisement; I'm still working on a revised draft, and aim to have an updated version to share this week. Cheers, WWB Too (Talk · COI) 15:55, 5 November 2012 (UTC)

Thanks WBB. You've done some good work locating all these citations. Best,-- — Keithbob • Talk • 19:17, 5 November 2012 (UTC)

Hi again, Westmorlandia and Keithbob. I've updated the draft in my user page to reflect many of your suggestions. I'll go through the proposed changes point by point:

• I've changed the introductory language significantly:

A hedge fund is an investment vehicle structured as a company or partnership. The fund is managed by an investment manager, which has employees and property and constitutes the actual hedge fund business. The investment manager, usually a firm, is a distinct legal entity separate from the actual hedge fund and its portfolio of assets.[1][2]

The investment manager often depends upon particular service providers for operational support.[3]

• I also added a sentence noting that prime brokers are "usually divisions of large investment banks" and added a citation supporting that language.

• Auditing is discussed in the Administrator bullet point, so I would rather not change this passage too dramatically.

• I kept the FATCA distributor definition. It is actually very difficult to find a proper definition for distributor, so it does seem valuable to have a cited legal definition available in this article.

• I added language to my draft noting the US GAAP / IFRS distinction and added a citation supporting that language.

• Merging the domicile and legal entity subsections might be possible, but I'd rather update the content first and work on a merge at a later date. Regarding taxation, US-based funds do manage around 70% of global assets, so while the tax info should not be exclusively focused on US funds, it makes sense that they receive emphasis.

• I made the suggested wording change to the Open-ended nature subsection.

Let me know what you think of these revisions, and thanks again for the feedback. WWB Too (Talk · COI) 18:57, 7 November 2012 (UTC)

I've looked through the service provider section of your draft and it looks good to me. After it gets posted I'll probably do some copy editing as I think some of the points could be worded more efficiently. But it seems to be factually correct and well cited and could go in the article as far as I am concerned. I'll look at the other sections as time allows.-- — Keithbob • Talk • 16:33, 8 November 2012 (UTC)

OK, that sounds fine. If you copy just that part over, I can amend my userspace draft accordingly, and then we can focus on the remaining sections. WWB Too (Talk · COI) 16:59, 8 November 2012 (UTC)

Sorry to be a downer on this, but to be honest I'm not sure that the new draft is any better than the existing wording. Just talking about the very first section, it seems less clear to me regarding all three of the service providers we currently mention. For example, the new wording:

(i) loses detail on the PBs re lending securities and acting as a counterparty for derivatives, both of which are important functions,

(ii) makes less sense for the administrator, because it uses vague words like "operations" that a reader will have no idea as to meaning of (or might take to mean fund management), doesn't mention the processing of subscriptions and redemptions, one of their more important functions, and talks disproportionately about the conflict issue for those US funds that do not have an independent administrator (making pains to justify the practice, which isn't the point of an encyclopaedia), and

(iii) uses an unhelpful and technical FATCA definition for a distributor, possibly under a mistaken impression that Wikipedia requires all content to be sourced.

It is a good idea to add an auditor section, but why say they use US GAAP or IFRS when they aren't all required to use these? It depends entirely on where they are set up. The draft also implies that auditors verify all NAVs, which they don't. Again, this seems to be to be trying a bit to hard to justify certain NAV practices, which is not what an encyclopaedia is for.

The opening sentence of the current wording needs amending, but I think the proposed changes are no better and possibly worse. So overall I'm really sorry, but I don't think we're really improving things here. If there is a weight of opinion that we need all these changes, I will say no more.

KeithBob - usually it is the fund that delegates those functions. In other words, it the fund that has a contract with the prime broker, the administrator, the auditor etc., not the manager. It doesn't matter that the fund is a company - it can still delegate (and does). In most structures the manager has no official role in any of these things (though in practice it is involved in all the fund's functions). Westmorlandia (talk) 16:02, 14 November 2012 (UTC)

West--Then who is the fund? and how does it function if it is nothing more than a collection of investment monies from its members? Doesn't the fund give power of attorney or something to the manager so that it can perform these functions on behalf of the fund? I'm not saying you are wrong, just want to understand this more clearly.-- — Keithbob • Talk • 20:22, 14 November 2012 (UTC)

Regarding the new draft. I have to say that my initial feeling about the new draft was similar to what Westmorlandia is saying. It's not the 'normal' WP process to completely rewrite a large section of the article and replace it in one edit. Usually improvements are made incrementally. I think adding citations to the existing text and then tweaking the text would have been a more traditional approach. At the same time I recognize that WWB has done a lot of work on this and has been acting in good faith and trying his/her darndest to follow all WP's complex guidelines, its less than user-friendly software platform and ever its ever changing community members. We should not waste WWB's efforts....... any suggestions WWB, on how to proceed?-- — Keithbob • Talk • 20:22, 14 November 2012 (UTC)

Here's a few comments on your current draft. I haven't really compared this to what's in the article now.

• You write that "The fund is managed by an investment manager, which has employees and property and constitutes the actual hedge fund business." It's true that hedge funds usually have no employees and instead rely on an investment adviser, sometimes called an investment manager, for advisory and other management services. The investment adviser may or may not have property of its own, which is probably not really a relevant point anyway. I don't know what you mean by "constitutes the actual hedge fund business," and you should rewrite or delete that.
• Hedge funds structured as limited partnerships, which is the most common structure in the United States, must have a general partner. The general partner may or may not be the same entity as the investment manager; more commonly they are different entities, but under common control. Often the general partner is itself a limited partnership or some other entity, such as a limited liability company, that is taxed as a partnership.
• In the definition of "distributor," I would remove the textual reference to FATCA; the definition itself is fine, and you could still use that cite. Many hedge funds don't have distributors, just relying on the investment manager. In these cases, the investment manager is not a "distributor," which would probably require it to register as a broker-dealer, so I wouldn't say that the investment manager takes the role.
• Usually the auditor does a complete audit of the fund's financial statements. This is not the same as verifying the NAV, which would be something different.

John M Baker (talk) 21:15, 14 November 2012 (UTC)

Earlier, I expressed acquiescence with the proposed changes, but after reading the comments above by people who evidently know more about hedge fund technicalities than I do, I find myself more unsettled. Can I make a suggestion? Why don't you, WBB Too, go back to the original and (a) add citations, and (b) make such minimal changes as are required to make it be correct and reasonably complete. There is no need to source everything, since some of it will be common knowledge in the trade. Wildfowl (talk) 21:32, 14 November 2012 (UTC)

Thanks for the feedback, everyone. I take all of these comments seriously, and I definitely appreciate the careful read. Earlier today I had started work on revisions based on Westmorlandia's feedback, but I think now I do need to step back and figure out how to solve the issues raised. Unfortunately, I'll be offline the next few days, but I will follow up before the U.S. holiday next week. Thanks again, WWB Too (Talk · COI) 22:45, 14 November 2012 (UTC)

I want to reiterate my appreciation for WWB Too's efforts and apologize for the delays' and complications which are not anyone's fault but an unintended byproduct of the inherent nature of Wikipedia and its collaborative methods. I appreciate your patience and continued effort to work together to improve the article. Happy holidays! -- — Keithbob • Talk • 20:28, 15 November 2012 (UTC)

New draft incorporating previous comments

Before I offer a suggestion for moving forward here (and I apologize in advance for the length) I'd just like to explain my process for updating the section. Wildfowl asked why not go back to the original, add citations and then make minimal changes to make the wording correct and reasonably complete. This is actually exactly what I did in the first place. For each section, I tried to identify sources that largely supported existing claims within the section. In most cases I have only tweaked the text slightly so that the article wording matches specific assertions from the citation(s).

I understand that not everything needs a citation, but I'd say that the confusion on this Talk page about the role and definition of an investment manager suggests that the current wording is not "common knowledge" and a reliable citation is necessary. As WP:VERIFY says, "any material whose verifiability has been challenged or is likely to be challenged, must include an inline citation".

As an example of what I've done with the section, let's look at how the Hedge fund structure section begins. The current wording is as follows:

A hedge fund is usually a company or partnership set up solely to make investments, and has no employees and no assets other than its investments. The portfolio is managed by the investment manager, a separate entity that employs the people who manage the portfolio and which is the actual hedge fund business.

There are no citations here. The wording in my current draft has been updated to reflect helpful feedback from Westmorlandia and Keithbob, and now says the following:

A hedge fund is an investment vehicle structured as a company or partnership. The fund is managed by an investment manager, which has employees and property and constitutes the actual hedge fund business. The investment manager, usually a firm, is a distinct legal entity separate from the actual hedge fund and its portfolio of assets.

The structure of this passage is very similar to the original. In addition, I have two sources that support this definition: Daniel Strachman's 2012 book The Fundamentals of Hedge Fund Management, and the 2008 book Business Knowledge for IT in Hedge Funds published by Essvale—both written for professionals in the finance sector. These sources offer the following definitions, respectively:

[T]he management company or managing member is the entity responsible for all aspect of the fund's operation. In this capacity, it will manage and operate the fund and be a paid a management fee for its services. The fund uses a management company to manage and operate the fund, rather than employing people directly, to avoid potential liabilities. (Strachman)

A hedge fund is a vehicle for holding and investing the funds of its investors. The fund is a vehicle for holding and investing the funds of its investors. The fund itself is not a genuine business, having no employees and no assets other than its investment portfolio and a small amount of cash,, and its investors are its clients. The portfolio is managed by the investment manager, which has employees and property and which is the actual business. (Essvale)

The wording in the current draft (a) reflects the definitions offered in these two reliable sources, and (b) is structurally similar to the copy in the existing article. Regarding John M Baker's comment about the wording "constitutes the actual hedge fund business": this line is slight variation on the article's current claim that an investment manager is "a separate entity that employs the people who manage the portfolio and which is the actual hedge fund business." The claim is supported by the Business Knowledge for IT Funds source, which says the "portfolio is managed by the investment manager, which has employees and property and which is the actual business."

I think the example above illustrates that my revisions are actually quite minor. Throughout the draft, changes in existing wording are only made to reflect specific claims from citations. It would not be honest to sprinkle citations throughout that say something different (even if only slightly different) than the claims in the article.

For now, I have updated the draft per Westmorlandia and John M Baker's notes:

• Updated the "prime broker" definition (with appropriate citations) to note that a prime broker may act as a counterparty to derivative contracts, and lend securities for particular investment strategies, such as long/short equities and convertible bond arbitrage.

• Updated the "administrator" entry to note that administrators process subscriptions and redemptions, and wikilinked "operations", "accounting", "valuation" and "subscriptions" to reduce ambiguity. I also made the following revision to the passage about US funds and external auditors:

Changed:

"Some US funds recognize this and voluntarily employ external auditors for greater transparency."

to

"Some US funds voluntarily employ external auditors, thereby offering a greater degree of transparency."

• Updated the Distributor definition to remove mention of FATCA and clarify that the investment manager would not fulfill this role, but carry out the distribution and marketing duties in place of a distributor. I also removed the "pursuant to a contractual arrangement" language.

• In the Auditor definition, I've added in language noting that they would perform a complete audit of financial statements, changed "will verify the fund's NAV" to "may verify the fund's NAV", and noted that the year-end audit is "often" performed with either US GAAP or IRFS, depending on the fund's location. I also clarified that "[s]ome auditors only provide NAV lite services, meaning that the valuation is based on prices received from the manager rather than independent assessment."

• To The legal entity, I have added in more detail regarding the "general partner" based on wording provided by John M Baker.

You can review the updated draft in my user space, if you'd like. To see how this version differs from the one before, see this diff. However, if others would prefer, another option is to deal with the proposed changes subsection by subsection, rather than replacing the entire section at once. Meanwhile, I do think that our mutual goal here should be moving away from "common knowledge" and towards supported claims. Using reliable sources whenever possible strengthens the article, and makes the content less arbitrary (and thus less open to future challenge). I'm looking forward to hearing everyone's thoughts. Cheers, WWB Too (Talk · COI) 22:03, 19 November 2012 (UTC)

WBB Too, thanks for your prompt on my user page. I have been holding back from commenting because it is getting a bit technical for me, not being a industry insider. I see little to object to, and certain improvements over the current text. I would prefer, however, to wait for others, including Westmorlandia and Keithbob, to comment. If the discussion dries up, perhaps you should adopt your option of dealing with the proposed changes "subsection by subsection". Wildfowl (talk) 18:57, 26 November 2012 (UTC)

Yes I would echo Wildfowl's suggestion about taking things subsection by subsection. I think you will get a lot more participation and make steady progress. When an editor, any editor suggests making large scale changes to an article it tends to chase away editors who don't want to read long threads and don't have time to check 20 sources before signing off on a new version. It also makes discussion about revisions and collaboration difficult as there is less back and forth, and nuanced discussion. That said, I will read your lengthy post above and give further comment in a few minutes.-- — Keithbob • Talk • 21:10, 26 November 2012 (UTC)

OK, I've read your post and I agree that 1) citations are important and the foundation of Wikipedia 2)having a citation after each sentence is a good thing and an improvement to the article 3) the article text should reflect what the citations say not what is purported to be 'common knowledge' or what one editor (no matter how expert they may or may not be). 4) when one adds a citation to a sentence it is appropriate to change the text of the sentence per the source. We create text based on solid sources rather than the other way around.......So we agree on all those things. I think the hang up is implementation. If you propose changes subsection by subsection. I will participate and I think we will make steady progress and get things done.-- — Keithbob • Talk • 21:20, 26 November 2012 (UTC)

All right, I appreciate both of your feedback on this. Since I had also contacted the other editors who had been involved in this discussion, I think let's hold it open for another 24 hours to give them a chance to comment, although if there are no objections from others, I should alos have the first of the section-by-section proposals to share late tomorrow. Cheers, WWB Too (Talk · COI) 22:26, 26 November 2012 (UTC)

Discussion on overall article

In my opinion:

This article is too long at 10,500 words which is over the 'allowable' limit

It's US centric

It's writing style is deeply flawed.

It is full of weasel words and rambling text that contains an overabundance of detail.

This gives it a readability grade score of 28 at [Edit Central http://www.editcentral.com/gwt1/EditCentral.html] college level is 13 to 16 and we should be at junior high to high school levels.

What really needs to be done is this article needs to be rewritten and revised by a team of editors over a period of months. Maybe we need to contact the Business Project about this and see if that's possible. Comments? Suggestions? -- — Keithbob • Talk • 17:59, 21 December 2012 (UTC)

No doubt the article is quite long and at 100 kB+ "almost certainly" should be subdivided. However, I see my goal here as trying to answer exactly the questions you raise: improving its readability, adding verification, bringing it closer to an encyclopedic style, including making it less opinionated. I'm not sure I would put too much stock in a third-party grade level indicator (my guess is that while the prose is not complicated, the words are unavoidably unusual). Perhaps there should be a longer discussion about what this article should look like down the road, however, I'd still like to address more immediate problems; I think my proposed draft for this section accomplishes the same as with the previous sections approved. What do you think? WWB Too (Talk · COI) 20:04, 21 December 2012 (UTC) NOTE: this cmt by WWB Too was copied here by me to start a new separate thread.-- — Keithbob • Talk • 20:55, 21 December 2012 (UTC)

Keithbob, I agree! (about the article overall rather than the proposed new section). I wouldn't be quite as condematory as you - my main beef is that it sounds as if written mainly by people who are in the industry and are unsceptical of it.

I notice that some of the topics within "Hedge fund" are covered by other articles (examples: "Global macro", "Event-driven investing"). More of this could be done. Where another article is referenced, only a short summary is needed in this article. I don't know anything about the Business Project, but try them.

I think the problem here is that people are divided into two categories: (1) industry insiders, who tend to be pro-hedge fund, and (2) non-insiders, who tend not to be confident enough in their knowlewdge to contribute. How do we get out of that conundrum? Wildfowl (talk) 20:11, 21 December 2012 (UTC)

I don't find it to be biased necessarily just unnecessarily complicated. WP articles are supposed to be written and read by moderately educated people who are not experts in the topic. So we don't need experts to write this article (though they are welcome to help). I'll have to look around and see if there is a project or noticeboard that would like to take this on as a project. -- — Keithbob • Talk • 20:55, 21 December 2012 (UTC)

Proposed revisions to Hedge fund structure

(introductory section)

First, thanks to all for the constructive feedback. Following Wildfowl and Keithbob's suggestion, I have now posted just the introductory section of Hedge fund structure to my userspace, aiming to find consensus by evaluating sections one at a time. Here are links to both:

• User:WWB Too/Hedge fund structure intro
• Hedge fund#Hedge fund structure

My goal here was to correct problems found throughout this section. First, and perhaps most importantly, the current version has zero supporting citations. Second, while the material is mostly correct, several claims differ significantly from information I found in multiple reliable sources. Third, the section uses financial terminology unfamiliar to lay readers. To address these problems, my draft raises the citation count from zero to 21, updates details to reflect information found in multiple sources, and adds more wikilinks where appropriate and makes sure abbreviations and acronyms are spelled out on first reference.

Here are some details based on revisions I have made to my own version, following editor feedback:

• Based on replies from Westmorlandia and Keithbob, I have made revisions to the opening sentences to add greater clarity to the investment manager definition.
• I've also updated the "Prime broker" line (and restored language about lending money and acting as a counterparty to derivative contracts) following input from John M Baker. My version is structurally similar to the existing entry, but includes more details and citations.
• The "Administrator" line reflects suggestions from Westmorlandia and John M Baker about net asset valuation and wording clarity.
• The "Distributor definition is much more detailed and accurate than the existing entry, and reflects wording suggestions from multiple editors.
• The "Auditor" entry is new and, based on sources, seems relevant to a list of common hedge fund service providers. I have updated the wording here to reflect suggestions from John M Baker.

Further details about these changes are detailed in the above discussion thread. As always, I am happy to answer any questions or provide additional information about particular wording changes. But If these changes seem neutral and acceptable to other editors, I hope someone will implement them. Cheers, WWB Too (Talk · COI) 19:07, 27 November 2012 (UTC)

Small point -> The current article has a Notes section and a References section. You refer to "Daniel A. Strachman (2012). The Fundamentals of Hedge Fund Management" several times with different page numbers. It would be better to put the full description of the work in References and "Strachman (2012), p. 123" in the Notes section. The same could apply to other references. Wildfowl (talk) 19:39, 27 November 2012 (UTC)

While it's true that there are separate Notes and References sections in the current article, in practice Notes contains what most articles call References, while the existing References section looks more like a For further reading section. In fact, none of the sources listed under the article's current References appear to be used in the article, so that's an issue for another time. However, for clarity, I've renamed the section in my draft to match what the article looks like now. WWB Too (Talk · COI) 20:03, 27 November 2012 (UTC)

OK. Wildfowl (talk) 21:09, 27 November 2012 (UTC)

Nice work WWB, your proposed section is much more encyclopedic, precise and accurate than the current version in the article. And like any content on WP its subject to revision and improvement by other editors should they find something that needs amending. For those reasons I say go ahead and make the switch. Well done.-- — Keithbob • Talk • 14:28, 29 November 2012 (UTC)

PS I've merged the Ref items into the Further Reading section. -- — Keithbob • Talk • 14:36, 29 November 2012 (UTC)

Good call on the Refs, Keithbob. Another question, actually: would you be willing to move my draft into mainspace? Because I was paid to write it, I prefer to act in an abundance of caution and refrain from direct edits, particularly related to Jimbo's advice. This is probably a case where I am less a paid advocate and more a paid editor but who's to say everyone agrees with those distinctions? If you're willing, very cool, but I'll also leave a note at WikiProject Cooperation in a moment. Cheers, WWB Too (Talk · COI) 15:53, 29 November 2012 (UTC)

 Done -- — Keithbob • Talk • 19:49, 29 November 2012 (UTC)

Many thanks! I'll post a discussion of the next section soon. Cheers, WWB Too (Talk · COI) 21:52, 29 November 2012 (UTC)

Domicile

I have now posted the specific draft for the Domicile section of Hedge fund structure to my userspace, again aiming to find consensus by evaluating sections one at a time. Here are links to the draft and the live section in the article:

• User:WWB Too/Hedge fund structure (Domicile)
• Hedge fund#Domicile

My goal with this draft was to find reliable sources to support existing claims, and to add additional information where useful. My draft raises the citation count from one to eight. All of the information presented reflects claims made in those sources. I do add about 80 words to this subsection, bringing the word count up from 170 to 250. But I think this is justified given that a fund's domicile plays an important role in determining its structure.

Let me briefly outline how my draft updates the domicile subsection:

• Changed "tax environment" to "tax expectations" in the first sentence, which is the more correct (and grammatical) phrase, as it refers to the investors specifically.
• Added new, relevant domicile-related details about offshore funds. The Daniel A. Strachman book The Fundamentals of Hedge Fund Management was a useful resource for this information.
• Changed "offshore centres" to "offshore centers", since the US spelling is used throughout the rest of the article.
• Updated formatting on the existing TheCityUK citation, and changed the wording in the last paragraph slightly for clarity.

I am happy to answer any questions or provide additional information about particular changes or sources. But If these changes seem neutral and acceptable to other editors, I hope someone will implement them. Cheers, WWB Too (Talk · COI) 21:35, 6 December 2012 (UTC)

Sorry WBB Too, I have some queries:

1. "Many hedge funds are established in offshore financial centers to avoid adverse tax consequences on foreign and tax exempt investors." This has become more specific than it was. Are these the only two types of investor to benefit from the tax-haven status of hedge funds?
2. To what extent are hedge funds also based offshore to avoid irksome regulations and disclosure rules?
3. "This tax treatment promotes cross-border investments by limiting the potential for multiple jurisdictions to layer taxes on investors." Is that really an additional reason for being based offshore, or is it a piece of advocacy for hedge funds?
4. In the next sentence, "are required to" suggests someone is telling them to "invest primarily in offshore hedge funds". Is this really the case? Why not replace "are required to" with "often"? Indeed, is that sentence really necessary?

Wildfowl (talk) 18:57, 7 December 2012 (UTC)

Thanks for the prompt feedback, Wildfowl. Let me address your concerns in order:

1. Foreign investors and tax-exempt domestic investors are the two specific groups of investors who would benefit from offshore investment. To be clear, "foreign investor" refers an investor from a country other than the onshore (likely U.S. or U.K.) account's domicile. The benefit would then refer to the avoidance of double taxation: foreign investors are subject to taxes in their own country and in the onshore account's country, but domestic investors (i.e. those based in the onshore account's domicile) are subject only to their country's capital gains tax, so there is no additional tax benefit to investing offshore.
2. As noted in both the existing section and my new draft, regulatory considerations do play a role. Country-specific regulations (which differ significantly) are discussed in the Offshore and other locations subsection of Regulation. Since this section is focused on structure issues, I think it would be better to include a link to that subsection rather than get into the regulatory details here—so I've added that link in my draft.
3. This sentence is meant to be an explanation of the structure, not advocacy for hedge funds. Establishing a tax neutral offshore domicile encourages foreign investment because there is no double taxation. (And as the Muraleedharan source notes, this investment also increases the foreign exchange reserves for the offshore country.)
4. The source used here, "The Fundamentals of Hedge Funds", uses the wording (my emphasis):

"Due to potential tax implications, non-taxable U.S. investors, such as pension plans, endowments, and charitable trusts are required to invest mostly in offshore funds because these investors need to avoid unrelated business taxable income (UBTI)."

In other words, non-taxable U.S. investors can only make particular investments to remain tax exempt. To make this clearer, maybe we can reword the sentence a bit to say:

To avoid unrelated business taxable income and preserve their tax exempt status, US tax-exempt investors (such as pension plans and endowments) must invest primarily in offshore, rather than onshore hedge funds.

Let me know what you think. Cheers, WWB Too (Talk · COI) 19:49, 10 December 2012 (UTC)

Overall it looks good.

I support the suggested expansion and clarification of the sentence about pension plans and endowments

I would like to suggest that since the section spends at least 50% of its "time" talking about taxes that the heading be amended to read: Domicile and taxation

-- — Keithbob • Talk • 20:52, 10 December 2012 (UTC)

Thanks, Keithbob. I'm OK with your additional suggestions. Please make the changes as you see fit, and if you or Wildfowl have any other questions, I'm happy to answer. Cheers, WWB Too (Talk · COI) 19:45, 11 December 2012 (UTC)

I also prefer the reworded "pension plans and endowments" section – so much so that I tried to improve on it even more, as follows.

US tax-exempt investors (such as pension plans and endowments) have to invest primarily in offshore rather than onshore hedge funds to avoid "unrelated business taxable income" and preserve their tax exempt status.

I just thought that word order would be clearer. What do folks think?

WBB Too, when you say "Please make the changes as you see fit", does that apply even to me? Wildfowl (talk) 21:37, 11 December 2012 (UTC)

Sure thing! As far as I'm concerned, the only person here who won't or shouldn't edit directly is myself. (And of course, if we disagree on anything, we can always talk it out.) Cheers, WWB Too (Talk · COI) 21:46, 11 December 2012 (UTC)

WWB has put a lot of time and effort into improving this article and providing citations for the current content which is the foundation of this encyclopedia. I'd like to see us move ahead with his drafts in a timely way and not get too hung up in minor wording as anyone is free to edit the content once its put into the article. That said, my hats off to all that are participating here. I know we all have the same goal :-) With that I am going to go ahead and implement this new version of the domicile section and anyone who feels to can tweak it as needed and/or discuss changes here. Thanks!-- — Keithbob • Talk • 23:35, 11 December 2012 (UTC)

Thanks Keithbob, that's really appreciated. In the interests of keeping things moving in a timely way, I'll aim to post an explainer for the next subsection tomorrow. Cheers, WWB Too (Talk · COI) 23:53, 11 December 2012 (UTC)

OK, I've made a number of copy edits for grammar, sentence structure, flow and readability. If I have inadvertently change the meaning of any of the sentences please let me know so I can correct myself. thanks. -- — Keithbob • Talk • 00:02, 12 December 2012 (UTC)

Just one small thing: in the third sentence of the first paragraph, "their" is better than "its" because the subject is hedge funds, plural. WWB Too (Talk · COI) 19:40, 12 December 2012 (UTC)

Investment manager locations

I've just posted the Investment manager location subsection of Hedge fund structure to my userspace, again aiming to find consensus by evaluating sections one at a time. Here are links to both:

• User:WWB Too/Hedge fund structure (Investment manager locations)
• Hedge fund#Investment manager locations

Compared to other sections, my changes here were fairly minor; here's how mine differs:

1. I've updated the number of investment managers using the most current figures from the Securities and Exchange Commission, and noted in the text that the SEC was the source.
2. I found two sources to support the existing claim about Connecticut as a leading location for US hedge fund managers.
3. Some of the information about Asia as a source of funds in the second paragraph was not reflected in the existing TheCityUK citation. I edited that language slightly to make it more accurate, and used the François-Serge Lhabitant book Handbook of Hedge Funds to provide some additional details about interest in hedge funds in Asia.
4. In general, I have endeavored to make the tone a little more encyclopedic and less journalistic.

I'm looking forward to feedback from others, and hopefully seeing this subsection updated. Cheers, WWB Too (Talk · COI) 19:43, 12 December 2012 (UTC)

 Done Other editors should feel free to edit the new content as needed. Ciao! -- — Keithbob • Talk • 17:20, 17 December 2012 (UTC)

Hey, thanks Keithbob. I might quibble with removing the bit about managers' onshore location relating to investor and talent proximity, though it might actually need one more citation (the current source does indicate this is true in London) and so I'll let it go for now. I'll post up the next explainer tomorrow or the day after, thank you! WWB Too (Talk · COI) 22:35, 17 December 2012 (UTC)

Hi, that bit didn't appear to be sourced and sounded like editorializing to me. But I could be wrong. If there is a source that says that then certainly it could go back in. Best, -- — Keithbob • Talk • 02:37, 18 December 2012 (UTC)

The legal entity

OK, new section for Hedge fund structure is now live in my userspace, available for review. Here are links to both:

• User:WWB Too/Hedge fund structure (The legal entity)
• Hedge fund#The legal entity

As before, my goal with this draft was to improve the sourcing and add additional details where necessary. The current subsection has zero citations, which is obviously an issue, particularly with terms like "limited partnerships" and "general partner" having specific legal meanings. In revising, I've used the Lhabitant and Anson books I'd also cited in previous subsections. Although I've the split the information into three paragraphs (from two), the total word count actually slightly decreased. To briefly outline the changes in my draft:

• I clarified existing information about limited partnerships and the role of the general partner.
• I added a citation in support of the specific claim that "Unit trusts are sometimes used to market to Japanese investors."
• I added additional information about a fund's board of directors, noting that the board's "primary role is to provide a layer of oversight while representing the interests of the shareholders", and that it may include "both affiliated directors who are full-time employees of the fund and independent directors whose relationship to the fund is limited to the board and limited consulting duties."

As always, I am happy to answer any questions or provide additional information about particular changes or sources. But If these changes seem neutral and acceptable to other editors, I hope someone will implement them. Cheers, WWB Too (Talk · COI) 18:51, 19 December 2012 (UTC)

I don't have time right now but please prompt me if I'm not back in 48 hours, thanks! -- — Keithbob • Talk • 06:46, 20 December 2012 (UTC)

No problem, I certainly can do! Thanks, WWB Too (Talk · COI) 18:25, 20 December 2012 (UTC)

OK I've looked it over and this section is like a poster child for everything that is wrong with this article:

The article is too long at 10,500 words which is over the 'allowable' limit

It's US centric

It's writing style is deeply flawed.

It is full of weasel words and rambling text that contains an overabundance of detail.

This gives it a readability grade score of 28 at [Edit Central http://www.editcentral.com/gwt1/EditCentral.html] college level is 13 to 16 and we should be at junior high to high school levels.

I understand that none of this is WWB's doing... its a situation that he/we have inherited. But what to do about it? I can't endorse the new text because its sort of lipstick on a pig (no offense to WWB) in terms of the issues I've listed above. What really needs to be done is this article needs to be rewritten and revised by a team of editors over a period of months. Maybe we need to contact the Business Project about this and see if that's possible. Comments? Suggestions? -- — Keithbob • Talk • 17:59, 21 December 2012 (UTC)

No doubt the article is quite long and at 100 kB+ "almost certainly" should be subdivided. However, I see my goal here as trying to answer exactly the questions you raise: improving its readability, adding verification, bringing it closer to an encyclopedic style, including making it less opinionated. I'm not sure I would put too much stock in a third-party grade level indicator (my guess is that while the prose is not complicated, the words are unavoidably unusual). Perhaps there should be a longer discussion about what this article should look like down the road, however, I'd still like to address more immediate problems; I think my proposed draft for this section accomplishes the same as with the previous sections approved. What do you think? WWB Too (Talk · COI) 20:04, 21 December 2012 (UTC)

Ok I've started a separate thread (below) so as not to derail this discussion. In my opinion your proposed version needs a rewrite because it perpetuates many of the same problems already in the article except with citations so I can't see myself supporting it. If others want to, then I'll step aside. What I would prefer to do though is to re-write the section and in a sense almost start over. I could do a rewrite and submit as a draft for discussion. Does that sound like something you would like to do? I don't want to obstruct you but both the current version and yours are confusing, overly detailed and U.S. centric IMHO. If other editors like your version and want to put it in the article I won't object but I can't support it as it just perpetuates the problems currently in the article. -- — Keithbob • Talk • 20:55, 21 December 2012 (UTC)

I appreciate your viewpoint, Keithbob. While I agree that a rewrite to be more concise is a reasonable future goal, I certainly disagree that the revised sections I've prepared "perpetuate" any problems; they simply don't address (and weren't designed to address) the concerns you raise. They are merely intended to correct inaccuracies, update figures, make language clearer, and verify information. I strongly object to the notion that the "writing style is deeply flawed"—I am always careful to write in an encyclopedic tone, with NPOV in mind. Perhaps these new versions are not perfect, but I do submit that they are an improvement. Even if this more detailed material should eventually be forked, I think what I am writing now could be the basis of that fork. So I'll hope you reconsider, however I will also ask others for their views. Best, WWB Too (Talk · COI) 15:54, 27 December 2012 (UTC)