Wednesday, May 25, 2016

What is a Hedge Fund? (Part 1) by Mark Pink, Founder,

What is a hedge fund? and how do they work?

Hedge funds have been around since 1949. The creator of the hedge fund, Alfred Winslow Jones, started the first one in the USA. He had an interesting background. He was born in Melbourne, Australia in 1901, to American parents. He graduated from Harvard in 1923, and then completed his PhD at Columbia later on. 

He was a former US diplomat in Berlin, Germany, and a financial journalist at Fortune, in New York. He saw an opportunity to change careers and move into money management in 1948. He raised $100,000 US dollars, including 40,000 dollars of his own, and started a simple long/short strategy. 

He bought the best performing stocks, and hoped they would rise in value, and also shorted the worst performing ones hoping they would fall. He also used leverage in order to maximize his performance. He formed a limited partnership to share all profits. It did well and started to charge 20% fees for himself as the managing partner, from outside investors based on his positive results. He was able to outperform all mutual funds of the day, and soon afterwards began to be recognized after a 5 year track record. 

Because he combined, both long and short selling, used leverage and even formed a limited partnership structure, he is now known as the modern father of the hedge fund industry. Many new strategies have since developed, and the assets of the industry have grown to more than US1 trillion dollars globally. Many hedge funds are now in cities like New York, London, Chicago, San Francisco, Tokyo, Hong Kong, Singapore and even Melbourne, Australia. This is Part 1 of a continuing series by

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