hedge fund


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hedge fund,

in finance, a largely unregulated investment device with a relatively small number of investors that aims to outperform the markets. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" positions (borrowing money to speculate on undervalued stocksstock,
in finance, instrument certifying to shares in the ownership of a corporation. Bonds are similar evidences of shares in a loan to a corporation. Stock yields no dividends until claims of bondholders have been met.
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; see hedginghedging,
in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market.
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). Not all so-called hedge funds are actively involved in hedging, and since the 1980s many hedge funds have been involved in sometimes very significant speculationspeculation,
practice of engaging in business in order to make quick profits from fluctuations in prices, as opposed to the practice of investing in a productive enterprise in order to share in its earnings.
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. In general, hedge funds, besides being unregulated, are investment capital funds that are limited to wealthy investors and large institutions, that are structured as partnerships, and that use investment strategies involving higher risks in an attempt to produce greater financial gains. The fees associated with hedge funds are high, and can reduce the returns to levels in line with investments involving lower risks. Aggressive hedge funds work with highly leveraged securitiessecurities,
in finance, instruments giving to their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages, bills of lading, and bills of exchange. See speculation and stock exchange.
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, often purchased with less than 5% of actual investor capital, with banks covering the balance. Macro hedge funds speculate in currencies of various countries; financial analysts and government officials blamed such funds, including George SorosSoros, George
, 1930–, American stock trader and philanthropist, b. Budapest, Hungary, as George Schwartz. He studied under Sir Karl Popper at the London School of Economics (grad. 1952).
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's Quantum fund, for disrupting the economies of Asian and Latin American countries in 1998. Other funds speculate in gold and other volatile commodities, or simultaneously buy and sell a stock or other financial instrument in two different markets to profit on the difference in value in the two markets (a technique called arbitrage). Funds are classified as U.S. or offshore; U.S. hedge funds are private investment partnerships that generally invest in traded securities. Offshore hedge funds (normally not open to U.S. investors) are mutual fundmutual fund,
in finance, investment company or trust that has a very fluid capital stock. It is unique in that at any time it can sell or redeem any of its outstanding shares at net asset value (i.e.
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 companies.

Hedge funds came to public view in 1998 when Long-Term Capital Management (a U.S. fund) nearly collapsed, requiring a $3.5 billion bailout organized by the Federal Reserve Bank of New York and paid for by private banks. The bailout led to a number of U.S. and international investigations into hedge funds and calls for greater regulation and scrutiny. An attempt by the Securities and Exchange Commission in 2004 to require hedge funds to register with it was overturned by the federal courts. In 2006 another major U.S. hedge fund collapse, that of Amaranth Advisors, cost investors more than $6 billion. By 2007 the assets of such funds were estimated at more than $1 trillion; in February of that year the Bush adminstration and U.S. financial regulators rejected increasing the regulation of the funds and instead recommended that persons, institutions, and banks engage in sound practices before investing in or lending to a hedge fund.

Bibliography

See study by S. Mallaby (2010).

References in periodicals archive ?
The SS&C GlobeOp Capital Movement Index represents the monthly net of hedge fund subscriptions and redemptions administered by SS&C GlobeOp on the SS&C GlobeOp platform.
Best pointed out saw their hedge fund holdings drop by almost two thirds from 2016 to 2017 - from 60 percent to 34 percent.
' Time Portfolio Asset Management, one of the nation's leading hedge funds, posted a 35.63 percent return through its hedge fund product, the Time-M, since the product's launch in May 2016.
The Little Book of Hedge Funds by Anthony Scaramucci, Wiley India Pvt Ltd., 2017, New Delhi, Pages 234.
For 2017, hedge funds were up 8.24 per cent, while underlying markets as represented by the MSCI World Index returned 17.55 per cent over the same period.
Following are Steinbrugge's predictions for the biggest trends in the hedge fund industry in 2018:
Figuring out how to start a hedge fund can be difficult, even for financial professionals.
The average short position in Nymex gasoline has fallen slightly from 1.07 million to 0.91 million barrels but not enough to offset the big increase in the number of hedge fund shorts.
However, for most hedge fund strategies, fee compression is the big risk.
Competition has become particularly apparent in the fees institutional investors are paying to invest in hedge funds. The industry standard has long been the so-called two-and-twenty model, in which managers earn 2 percent on assets under management, plus 20 percent of profits returned - arrangements that Berkshire Hathaway CEO and perennial hedge fund critic Warren Buffett recently said "eat up capital like crazy."
It took less than a decade for Alfred Winslow Jones, a former Fortune magazine scribe, to capitalize on the exemption, creating the first-ever hedge fund. A.W.