The history of funds and hedge funds Part 1 Introduction
Types of Mutual Funds
There are several different kinds of funds available to those who are looking for an option to invest their money. The most common type of fund that exists is known as a mutual fund, which then breaks down into further subcategories. The three most widely used and discussed of these in the USA are the open-end, closed-end and unit investment trust. Various other funds also exist, each of which have their own set of advantages, limitations, and characteristics that are defined according to specific rules and depend upon the way they are organized.
Source:https://www.mint.com/blog/investing/mutual-fundamentals-a-visual-guide-052012/?display=wide
Hedge funds are also a popular method used by people to invest their finances, but this a methodology adopted exclusively by those who belong to the elite class across the globe. This is because they are structured along a different concept, which sets them apart from mutual funds.
Still, the quality that they all share is that they offer people a chance to pool their resources together, which leads to the creation of the fund itself. It enables them to save their resources in a safer way by splitting the risk involved between them. The aim of each of the investors can also be taken to be the same if they are contributing to the same fund, since it will be used collectively to buy securities.
How they generally work can be a complicated process to understand at times, but the idea can be understood with much more ease when put into simpler terms. The funds are typically run by a person who has been specially appointed as the person in charge. This person is generally known as the fund manager in case of mutual funds. In the case of hedge funds, they are usually referred to as the investment manager. This is a highly skilled and learned person when it comes to decision-making regarding investments, profits and losses, and they have a thorough understanding of the finance world. He or she must also be well aware of all the current market trends, since a large group of people is entrusting them with a huge responsibility.
The amount that people invest greatly depends on the type of fund that they choose to go for. People who want to spare smaller amounts for this purpose can opt for mutual funds. Thus, this means that a larger fraction of the population can take part in this kind of financial activity and they can easily select those funds which suit their needs better.
Hedge funds on the other hand are not an option that is available to the general public at large. This is because they work quite differently and certain prerequisites must be met before one can invest in a hedge fund.
- First of all, they must have the ability to contribute the large sum of money that is associated with a hedge fund.
- Secondly, they must be cleared by the relevant government agency before they can do so. They must be accredited and must meet the bare minimum cut-off for annual earnings.
Even though there are several differences and similarities between these two prominent types of funds, they have both been on the rise in terms of popularity as more and more people are looking into these depending upon their own personal means. As the past reveals, both of them have immensely evolved over the years and have become a major chunk of the total financial exchanges that take place today.
In order to understand how and when these changes came to be, it is necessary to closely examine the step-by-step development of these financial tools. It must be studied holistically by considering the perspectives of politics, history and economics. This will allow us to truly see how things turned out the way they are right now. This will also lend valuable insight into the key features that stand out and those that are most important to people when it comes to dealing with their money.
In this article, we will begin by looking at the earliest known examples of such funds and why they came into existence. We will then investigate how they were modified decade after decade, until finally reaching their present status. History can often be a fundamental indicator of what shape things may take in the near as well as distant future, and can enable us to make reasonable predictions that could someday prove to be highly beneficial.
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FAQs
A hedge fund can be defined as an actively managed, pooled investment vehicle that is open to only a limited group of investors and whose performance is measured in absolute return units. However, this simple definition excludes some hedge funds and includes some funds that are clearly not hedge funds.
What is the history of hedge funds? ›
Modern hedge fund history began with Alfred Winslow Jones, a sociologist and journalist who wrote about market behavior in the 1930s and 1940s and founded one of the first hedge funds in 1949. Jones's fund used leverage and short selling to "hedge" its stock portfolio against drops in stock prices.
Who was the founder of the first hedge fund? ›
What was the first hedge fund strategy? ›
Alfred Winslow Jones is cited as creating the first hedge fund strategy in 1949. His thesis was simple but groundbreaking: he sought to separate two risks involved in investing in stocks by creating a market-neutral portfolio. The first, market risk, is caused by changing stock prices as a result of market influences.
What is a hedge fund in simple terms? ›
The term “hedge fund” refers to an investment instrument with pooled funds that is managed to outperform average market returns. The fund manager often hedges the fund's positions to protect them from market risk.
What is the history of hedging? ›
Historical precedent suggests that hedging began as far back as 2000 BC [4] when precious metals were used as trade currency. Accumulating gold was a hedge against regional crises and resource scarcity. More formal hedging is noted to have started in the mid-1800s with commodity futures and options [5].
What is the goal of a hedge fund? ›
Hedge funds pool money from investors and invest in securities or other types of investments with the goal of getting positive returns.
What is a hedge fund quizlet? ›
A hedge fund is a private investment fund that is generally "unregulated" or permitted by regulators to undertake a wider range of activities.
What is an example of a hedge fund? ›
Some examples of hedge funds include names like Munoth Hedge Fund, Forefront Alternative Investment Trust, Quant First Alternative Investment Trust and IIFL Opportunities Fund. There are others such as Singlar India Opportunities Trust, Motilal Oswal's offshore hedge fund and India Zen Fund.
Who is the richest hedge fund CEO? ›
Who Is the Richest Hedge Fund Manager? Ken Griffin of Citadel is both the richest hedge fund manager and the highest paid. In 2022, he earned $41. billion, and by the beginning of 2023 his net worth was estimated at $35 billion.
In 1975, Bridgewater Associates was founded by Ray Dalio in his Manhattan apartment. Today Bridgewater is the largest hedge fund in the world and Dalio has a personal fortune of approximately $19 billion.
Who owns hedge funds? ›
Remuneration of portfolio managers
Hedge fund management firms are often owned by their portfolio managers, who are therefore entitled to any profits that the business makes.
How do hedge funds make money? ›
Hedge fund makes money by charging a Management Fee and a Performance Fee. While these fees differ by fund, they typically run 2% and 20% of assets under management. Management Fees: This fee is calculated as a percentage of assets under management.
What is the most valuable hedge fund? ›
What is the main strategy of hedge fund? ›
The most prevalent of the hedge fund strategies, equity strategies hedge funds take long positions in stocks perceived as undervalued and short positions in stocks considered overvalued. Equities' correlation with macroeconomic factors mean they are seen as a riskier class for investment than cash and bonds.
How does a hedge fund work for dummies? ›
Hedge funds use pooled funds to focus on high-risk, high-return investments, often with a focus on shorting — so you can earn profit even when stocks fall.
How much money should you have to start a hedge fund? ›
With respect to establishing a U.S. hedge fund, average hedge fund startup costs range from $50,000 to $100,000, and first- year operational costs usually total $75,000 to $150,000.
What is a hedge fund startup? ›
So you want to start a hedge fund. These alternative investments use pooled funds and a variety of strategies to achieve returns for investors. They are generally formed to identify and take advantage of specific investment opportunities, many of which come with a great deal of risk.
How do people start their own hedge fund? ›
A typical hedge fund structure requires one business entity for the fund itself and a separate entity for the hedge fund manager. For instance, you may use a limited partnership (LP) structure, in which the hedge fund manager is a general partner and fund investors are limited partners.
