Where is a hedge fund's money held?
Beginners · Video 8 of 12 · 0:41 ·
Not in the manager's personal account. The fund opens accounts in its own name: cash at a bank and trading at a broker, both owned by the Fund LLC. FDIC insurance covers up to $250,000 per depositor per bank, and the fund counts as one depositor; SIPC covers up to $500,000 if a broker fails. Neither covers investment losses.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- Investor money in a personal account is mixed with the manager's own money.
- The fund's bank and brokerage accounts are in the Fund LLC's name.
- FDIC covers $250,000 per depositor, per bank, per ownership category; the fund is one depositor.
- SIPC covers up to $500,000 (including up to $250,000 in cash) if a member broker fails.
- Neither FDIC nor SIPC covers market losses.
Transcript
Founder: Easiest way to collect from investors? Venmo. Right?
Operator: Into your personal account? Then it's mixed with your own money.
Operator: So the fund gets its own accounts, in the Fund LLC's name.
Operator: Cash sits at a bank. Trading happens at a broker. Both owned by the fund, not by you.
Founder: And if the bank fails?
Operator: FDIC insurance covers $250,000 per depositor, per bank. The whole fund counts as one depositor.
Operator: At the broker, SIPC covers up to $500,000 if the firm fails.
Founder: So my losses are covered?
Operator: No. Neither covers investment losses. Only the bank or broker failing.
Operator: And bigger funds pass those lines quickly. So it helps to know where they are.
Founder: So... no Venmo?