Hedge fund (hedge fund) - A private, unregulated or more loosely regulated investment fund that is inaccessible to the general public and managed by a professional investment manager. Characterized by a special asset management fee structure.
The first hedge fund - independence from the direction of the market
The very first hedge fund was founded by American A.W. Jones in 1949, whose main source of investment was his own funds and those of his friends. The results of the trading strategy of the first hedge fund manager surprised many financial market participants. Jones combined two high-risk instruments - short positions and leverage. Such an approach in the organization of the trading system made it independent of market directionsThe fact that it was not possible to get income on both the rise and fall of asset prices.
Transactions to buy undervalued shares and sell overvalued ones could not lead to doubts about the assumed positive returns because of the unpredictable direction of the market, for a rising market implies a faster growth of undervalued shares, and a falling market implies a rapid fall of overvalued assets. Use of borrowed funds allowed to increase profitability of this trading system at times.
This logic started the definition of the basic principle of hedge funds - making speculative profits based on the psychology of chaotic and unpredictable markets.
The success of the first hedge fund began the process of developing a new peak in the financial industry. Two years later, the number of working hedge funds reached 140, the total amount of assets under management reached about 1 billion. dollars. At this time of the U.S. market upturn, many managers neglected risk insurance strategiesThe oil crisis of 1973-1974, and the recession of late 1968, caused them to incur substantial losses.
Хедж-фонды – вершина финансовой индустрии
With the arrival in the hedge fund industry of such professional managers as George Soros, Julian Robertson and others, the 80s of the last century were marked by its new rise. The high rates of return of such macro funds as Tiger, Quantum and others in the 1990s increased capital injections under hedge fund management. But the increase in working capitalization required modifications of risk management strategies to maintain yields at an appropriate level. During the following periodic crises many hedgers suffered losses due to unreasonable organization of risk management systems.
Today in the world has more than 12,000 hedge funds with more than $2 trillion under management. The largest of these are such giants as AHL ($33 billion) and GLG ($38 billion) managed by Man Group plc. Hedge funds have become the pinnacle of the financial industry, with the potential for development still taking place in the space of random market fluctuations.