Hedge Funds
...fund, I suspect most folks would characterize it as a highly speculative vehicle for unwitting fat cats and careless financial institutions to lose their shirts." This characterization stems from the hedge fund's recent history, which
began with the headline-making collapse of Long Term Capital Management in 1998 and
continued with the sensational meltdown of the Tiger Funds in March of 2000,
followed by the reorganization of the once high-flying Quantum Fund in April of 2000
and just ten days back Amaranth went broke losing
$6 billion because of bad natural gas trades in less than one month
These high-profile incidents overshadow more than half a century of hedge fund history that began when Alfred Winslow Jones launched the first hedge fund in 1949.
WHAT'S A HEDGE FUND?
An aggressively managed portfolio of investments that uses
advanced investment strategies such as
leverage (Arbitrage inefficiencies are very small and in order to get a sizeable return, high turnover is required. Leverage accomplishes the same. This precisely is what makes investment in hedge funds a very risky proposition while at the same time allowing them to gain huge profits.)
long, short and
derivative positions
in both domestic and international markets
with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).
Legally, hedge funds are most often set up as private investment partnerships that are open to a
limited number of investors and
require a very large initial minimum investment.
Investments in hedge funds are illiquid as they often require investors keep their money in the fund for a minimum period of at least one year.
For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors.
In the U.S., laws...
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