Hedge Funds: An explainer to Showtime's Billions

The news that breaks on the hour is late. If you wait for breaking news, you are late. If you are late, you are a dead fish in the water. Whales like Bobby swallow you whole.

Hedge Funds: An explainer to Showtime's Billions

You are watching billions, and you can’t quite relate to some terms, and you stop watching??

Well, let’s break it down.

What Is a Hedge Fund?

Short answer: Axe Capital

Long answer: A hedge fund pools money from investors to buy securities or other types of investments. Now, that’s an oversimplification.

Hedge funds collect funds from selected people or institutions and actively manage them using various strategies such as leveraging, debt-based investing, derivatives and short-selling.

Hedge funds invest in asset classes that mutual funds or retail investors can’t or may not have the financial muscle to pull off. They move aggressive, fast and flexible.

Axe Capital deals are worth millions. Axe Cap manages about $10 billion.

The Nature Hedge Fund?

Hedge funds are, by nature, very risky. They place big bets on assets classes and events looking for out-sized gains, usually in the short-term. The time frame is generally shorter than a quarter.

Recall the scene where Axe receives a call that a pipeline is leaking and the rig would explode? Well, if Axe did not receive that call and wasn’t able to offload the shares of the sector, then the amount lost would be in hundred million.

Hedge funds are exclusive. You have a net worth of at least $1M generally or an annual income over $200,000 for the previous two years.

You are welcome to the big boys club.

Beyond having a net worth of at least a million, you have to be an accredited investor or an institutional investor, like pension funds.

While investments can be withdrawn at certain points throughout the year, money placed into hedge funds is usually locked up for at least a few months. This prevents investors from backing out if they're spooked by a significant dip during a particular week.

Hedge funds have access to nearly all investment vehicles.

They can bet on almost everything. How do Elon Musk’s tweets affect the market?? There’s is a quant to analyse that. The FDA would approve fruit juice; they are in already. Speed is the game.

The news that breaks on the hour is late. If you wait for breaking news, you are late. If you are late, you are a dead fish in the water. Whales like Bobby swallow you whole.

Recall how Bobby has to offload pipeline without spooking the markets?? How Taylor got a sniff of that offload and acted. That’s how it goes.

Those art pieces Bobby had art pieces in a freeport, tax-free? Those are asset classes.

Who is Bobby?

That’s a fund manager you are looking at right there.

“Kennedy wasn’t under as much pressure as I am.” - Bobby “Axe” Axelrod

A Fund manager is an investment manager who makes the daily investment decisions for a hedge fund. They choose how to distribute invested money and manage the fund’s level of risk.

How do Fund Manager get Paid?

If you are wondering what makes them want to be successful? Their pay.

Fund managers aren’t only paid a flat fee. They also get paid based on their performance. Same as their employees.

It’s Kom time, baby.‌‌

Fund managers always do not always charge 2 and 20. Typically, that’s a 2% asset management fee of the amount you have invested (asset under management- AUM), plus a performance fee equal to 20% of the hedge fund’s profit.

At Axe Capital, the fee structure is three and 30. This means that an investor who has $4 million with Axe Capital will be charged $120,000 (3% of AUM) at year-end as compensation for the firm managing his or her funds.

Resources

While this is just a comprehensive explainer. There are a lot of  financial terms used  so here are some resources to consult when they come up in the series.

Billions: Glossary
We don’t think it’s essential to be a financial or legal expert to enjoy Billions. It is a show more about characters and their interesting relationships than about the workings of Axe …
The Investopedia Guide to Watching ‘Billions’
This viewer’s guide to the hit show “Billions” on Showtime helps fans understand the financial industry jargon that is interwoven through the show’s intense plot.