hedge fund

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Related to hedgefund: Private equity, securities

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 ?
HedgeFund is owed $10 and has a security interest in all
Nearly 500 funds disappeared last year, according to HedgeFund Intelligence, but that's out of a universe of roughly 7,000.
The hedge fund aggregate average index, compiled by HedgeFund.
Hedgefund Intelligence also produces "EuroHedge," "AsiaHedge" and "InvetHedge" newsletters.
The Irish man sacked City legend Morrison from International Investment and Underwriting following the maid's allegations, but the move outraged investment banks JP Morgan and Deutsche Bank, which had invested nearly pounds 50million in the hedgefund on the understanding it would be managed by the company's star perfomer, Morrison.
Once again the early firmness had been caused by hedgefund shortcovering, and the weakness by trade and producer selling once the higher levels had been reached.
Prior to joining HFR, Schwab launched and developed the commercial business of the HedgeFund.
Pippa Middleton, who is enjoying her honeymoon with hedgefund manager James Matthew, channeled her sister Kate Middleton during the couple's trip to Sydney on Wednesday.
It's not right to sacrifice young and middle-aged people for the greedy and reckless actions of the banks and hedgefund managers.
Meanwhile, the chief minister, Fabian Picardo, wants hedgefund managers to move from Britain, promising huge cuts in income tax, meaning no tax for our own hospitals and schools.
Hedgefund ValueAct is working to scuttle the proposed acquisition of Chiron, which has a major base in Liverpool, by Swiss drugmaker Novartis and said they will attempt to remove Howard Pien if he defends the sale.