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January 30, 2006
The birth of hedge funds
The beginning of hedge funds traces back to the year 1948 when Alfred Jones, a graduated from Harvard while writing an article about current investment trends for was inspired to try his hand at managing money. He raised $100,000 and made an effort to try to minimize the risk in holding long-term stock positions. He did so by short selling other stocks. Jones further employed leverage in an effort to enhance the returns.
In the year 1966 another article in Fortune magazine highlighted an investment that had outperformed the mutual funds saw the birth of the hedge fund industry. In a span of two years, there were close to 140 hedge funds in operation. The strategy to increase returns saw a changeover at this point. But unfortunately, this led to heavy losses in the year 1969-70, and was followed by a number of hedge fund closures in the following years.
The industry came alive again in 1986 when another hedge fund captured the interest of investor because of its outstanding performance. Soon investors started turning to hedge funds instead of mutual funds. Keeping in tune with the highs and the impeding lows of the industry, the late 1990s and early 2000s again saw a crash in the industry.
Today, inspite of the trouble seen in the last few years, the hedge fund industry is thriving. Currently there has been an increasing move towards regulating the functioning of the industry.
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