Hedge Fund Wiki

Answers to common questions about hedge funds, their SEC filings, insider trading and Congress trades, and about the data on HedgeFollow.

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Hedge Funds 101Which funds HedgeFollow follows, the filings that show what they own, and what those filings can't tell you. Insider Trading 101Who counts as an insider, when insider trading is legal, the kinds of insider trades, and which ones tell you something.

13F, 13D and 13G filings

What is a 13F filing?A 13F is a quarterly report to the SEC listing the US stocks, ETFs, listed options and other "13F securities" an investment manager held at the end of the quarter.
When are 13F filings due?Within 45 days after each calendar quarter ends: around February 14, May 15, August 14 and November 14.
What are 13F securities?They're the securities a 13F has to report: mainly stocks, ETFs and closed-end funds listed on US exchanges, along with listed options and warrants on them and some convertible bonds.
Where can I find 13F filings?Every 13F is public on the SEC's EDGAR database: search for the fund's name and look for filings of type 13F-HR.
How out of date are 13F filings?A 13F shows holdings as of the last day of a quarter and can be filed up to 45 days later.
What is an amended 13F (13F/A)?A 13F/A changes a 13F after it's filed. It either restates the whole filing, to correct mistakes, or adds holdings that were left out, often positions the SEC had let the fund keep confidential.
What is a 13D filing?A Schedule 13D is the filing an investor must make within 5 business days of acquiring more than 5% of a company's voting stock, when it may try to influence or control the company.
What is a 13G filing?A Schedule 13G is the shorter filing for investors that own more than 5% of a company's voting stock but don't intend to influence or control it: passive investors, and institutions such as banks,…
What's the difference between a 13D and a 13G?Both report a stake of over 5% of a company.

Insiders and Congress

What is an SEC Form 4?Form 4 reports a change in a company insider's holdings.
What is an SEC Form 3?Form 3 is an insider's first report of ownership: what they own in a company when they become an officer, director or owner of more than 10% of its stock.
What is a Form 144?Form 144 is a notice that an insider or other affiliate of a company intends to sell restricted or control shares.
What is a 10b5-1 trading plan?A 10b5-1 plan is a written plan an insider sets up in advance to buy or sell company stock on a schedule or at set prices.
Is insider trading illegal?Not always. Insiders may buy and sell their own company's stock as long as they report it and don't trade on material non-public information.
How do members of Congress report their stock trades?Under the STOCK Act of 2012, members of Congress report trades over $1,000 by them, their spouses and their dependent children in a Periodic Transaction Report, within 30 days of learning of a trade and no later than 45 days after it.

Hedge funds

What is a hedge fund?A hedge fund is a private investment fund that pools money from wealthy individuals and institutions and invests it with few restrictions: it can short stocks, borrow to invest, use derivatives and…
What do hedge funds do?They invest their clients' money aiming for returns that beat the market, or that hold up when it falls, using strategies ordinary funds can't: short selling, leverage, derivatives and concentrated bets.
How do hedge funds work?Investors put money into a fund, usually a limited partnership, and a management company invests it.
What is a hedge fund manager?The person, or firm, that runs a hedge fund: setting its strategy, deciding what to buy and sell, managing its risk and raising money from investors.
What is a quant fund?A quant fund invests by computer models rather than by a manager's judgment: statistical patterns in prices and data decide what to buy and sell, and the trades are often automated.
What is a long/short fund?A long/short fund buys stocks it expects to rise (going long) and sells short stocks it expects to fall.
What is an activist hedge fund?An activist fund buys a large stake in a company it thinks is undervalued and then pushes management to change course: seats on the board, a sale or break-up, buybacks, cost cuts or new leadership.
What is the difference between a hedge fund and a mutual fund?Mutual funds are open to anyone, tightly regulated and can be sold any day.
Is Berkshire Hathaway a hedge fund?No. Berkshire Hathaway is a publicly traded holding company that owns whole businesses, such as GEICO and the BNSF railroad, along with a large stock portfolio.
Why are hedge funds called hedge funds?After the first one, set up by Alfred Winslow Jones in 1949, which bought stocks it liked and sold short stocks it didn't, so it was "hedged" against the market as a whole falling.
Where are hedge funds located?Most US hedge funds are in New York City and nearby Connecticut (Greenwich and Stamford), with others in Boston, the San Francisco Bay Area, Chicago, Texas and, increasingly, Florida.
Why invest in hedge funds?For returns that don't simply follow the stock market: a good hedge fund aims to make money in falling markets too, which can steady a large portfolio.
How do you invest in a hedge fund?You need to be an accredited investor (some funds require more), meet the fund's minimum, often $100,000 to $1 million or more, and be accepted.
Who can invest in hedge funds?Accredited investors (people with over $200,000 in income or $1 million in net worth outside their home, and certain professionals) and institutions such as pension funds, endowments, insurers and family offices.
What is an accredited investor?Someone the SEC allows to invest in private offerings such as hedge funds: generally a person with income over $200,000 ($300,000 with a spouse) in each of the last two years, or a net worth over $1 million not counting their home.
How do you become an accredited investor?By meeting one of the SEC's tests: income over $200,000 ($300,000 with a spouse or partner) in each of the last two years, a net worth over $1 million not counting your home, or holding a Series 7, 65 or 82 license.
What does "2 and 20" mean?The traditional hedge fund fee: a management fee of 2% of the money invested each year, plus a performance fee of 20% of the profits.
What does AUM mean?Assets under management: the total value of the money a fund or firm manages for its investors.

Using HedgeFollow

Which funds does HedgeFollow count as hedge funds?HedgeFollow tracks every institution that files a 13F, and groups them so you can choose whose trades to count: hedge funds, all institutional investors, outperforming funds (3+ stars) or strongly outperforming funds (4+ stars).
How does HedgeFollow rate funds?From 0 to 5 stars, by how well each fund's top 20 stock holdings performed over the last three years, with penalties for volatility and drawdowns.
What is a fund's average buy price?HedgeFollow's estimate of what a fund paid per share for all the shares it holds, built from every trade in its filings.
What is the median breakeven?The middle of the average buy prices of all the funds holding a stock: half of them paid more for their shares, half less.
What are informative insider trades?The insider buys and sells HedgeFollow considers likely to reflect what the insider thinks of the stock: real purchases and sales that aren't part of a trading plan, aren't to pay tax, aren't…
What are small, medium and large trades and stakes?They size a fund's trade or holding against its whole portfolio.
What does "% of portfolio" mean?A holding's value as a share of the fund's total 13F holdings, also called its manager weight.
Why does a fund show every holding as a new buy?Because it has no 13F for the quarter before: it's filing for the first time, or it skipped a quarter.
What is the earnings payback (implied P/E)?The number of years a company would take to earn back its share price, with its earnings growing at the rates you expect.