Hedge Funds Boon Or Bane?

Who doesn't want to make money? Everyone right? An American Hedge Fund is a great read for all those who want to be successful in life because it shows you how to think smarter, along with what is achievable with money (which is the most important thing on earth). This book, written by Timothy Sykes, shows the ease of becoming a self made millionaire, if you are motivated to do so. Timothy Sykes began his millionaire conquest at the age of 14 where he gained interest in the stock market. By his freshman year in college he figured out a way to determine a pattern for stocks fluctuating prices. His pattern allowed him to buy and sell stocks making huge gains and minimal loses. After his new profound wealth, it made him realize, “for better or

Lewis focuses the book from the perspectives of leaders from three investment firms that saw the future of the financial market and its inevitable collapse in the early 2000’s. Though given the opportunity, these men were not heroes. Instead of spreading the news and rebelling against Wall Street for infecting the market, they were more interested in making a profit. Michael Burry was focused on his company Scion Capital and buying credit default swaps to make both him and his investors’ money. Charlie Ledley and Jamie Mai focused on betting against Wall Street and ultimately in the end made fortunes.

Hedge-funds are essentially investment pools for wealthy individuals that are managed by the best investors in the world. These investors use various strategies in order to increase returns and minimize losses. Hedging by its definition is an investment strategy that essentially uses put options to minimize losses on an investment. By taking an offsetting position on a security, the investor can protect him or herself from a total loss on that investment. Hedging is essentially an investor’s version of car or home insurance. While insurance will not cover your total loss, it prevents you from taking a total loss on your investment. Credit default swaps are a way of using this “hedging” strategy. Credit default swaps are essentially the insurance companies of Wall Street. If a pension fund wanted to loan money to a company that did not have a AAA or AA rating, they could loan money to the company through purchasing a credit default swap. If that company defaulted on the loan then the credit insurers would pay the pension fund the remaining amount on the loan’s interest. In return, the pension fund would have to pay a percentage of the interest they collected on their loan to the credit insurers. The system worked fantastically for both sides until hedge-funds found the ability to profit off of these credit default

Hedge fund managers have started to embrace the use of blockchain technology to facilitate investment and process optimization. Several private investment funds have spearheaded the implementation of blockchain technology and smart

In this unwelcome role, hedge funds are prey to heightened scrutiny, not only from the media, but also from the Department of Justice, the Securities and Exchange Commission and the

George Soros, a significant hedge fund manager, made a considerable return of one billion dollars in a single day by taking advantage of the English Pound and selling it a favorable time. This is considered by many financial analysts to be one of the most exceptional investments of all time. Instances such as the latter are not rare in the profession of hedge fund managing. These individuals look over hedge fund portfolios, which often use high risk methods in order to achieve an exceptional return on an investment in spite of the current market conditions. Even though the career of managing hedge funds is competitive and high-risk, the potential salary and benefits that are available with this quickly growing career is a stimulus in regards to the need for more investors in the market.

In 1949 Alfred Winslow Jones, a sociologist investigating fundamental and technical research to forecast the stock market for Fortunemagazine, set up an investment fund with himself as general partner. The fund followed three key tenets: (1) always maintain short positions, (2) always use leverage, and (3) only charge an incentive fee of 20 percent of profits with no fixed fees. Jones called his portfolio a “hedged” fund (eventually shortened to “hedge fund”) because he had short positions to offset his long positions in the stock market. Theoretically, the overall portfolio was hedged against major market moves.

Hedge funds originated in the late 1940s, and they have been causing problems in the US economy since then. Due to the fact that hedge funds basically function on loopholes in American laws, it simply creates a way for the rich to become richer and the poor to become poorer. An example of this is the way that hedge funds are structured to avoid regulation by the Securities and Exchange Commission (SEC), the “federal regulator of securities markets” (Investopedia) in the United States. Hedge funds are able to exempt themselves from the Investment Company Act of 1940, an act put in place by the SEC that imposes limits on the use of certain investment techniques, by having “less than 100 investors” (Fichtner 8) or making sure that investors are

However, the game has changed. Hedge fund performance has plummeted as have investor gains. What was formerly little more than good-natured grumbling became a rallying cry for hedge fund investors of all stripes. Hedge fund gains, which had previously justified the two-and-twenty fee structure, evaporated. As a result, CalPERS, AIG, MetLife, NYCERS and a host of other investors have either reduced or eliminated hedge fund investment.

Established in January 1999, Pine Street Capital (PSC) was a market-neutral hedge fund that specialized in the technology field, facing market risk and trying to decide whether and which way to use in order to hedge equity market risk. They choose technology sector because the partners of PSC felt that they have enough ability to evaluate this sector and specially be good at picking out-performing stock. Short-selling of NASDAQ and options hedging strategy are the two major hedging choices for PSC. Either strategy has its own advantages in different economic periods and conditions. The fund has just through one of the most volatile periods in NASDAQ 's history, and it was trying to decide whether it should continue its risk management

Legendary short seller Jim Chanos, Founder of Kynikos Associates the largest exclusive short seller in the world, presented his views on why Caterpillar, due to accounting issues and the lack of growth, is a short as well as his older short HP is still in place. Mark Kingdon, President of Kingdon Capital Management, suggested going long the following Japanese stocks with low PE ratios (Mazda, Fuji Heavy (Subaru) and Toyota as well as a pharmaceutical firm called Aegerion will have good returns over the next 12-18 months. When it comes to Powering America the panel suggested that natural gas is cheaper and investors should include natural resources in a portfolio for protection against an inflationary environment with a panelist suggesting a long position in Whiting Petroleum. Activist investor Nelson Peltz was asked about his long position in DuPont and did not comment, but discussed his stakes in Pepsico and Mondelez and suggested two scenarios for Pepsico to follow.

My experience at Villanova, both as a research fellow and a student was formative of my fascination with investments, hedge funds, and mutual funds. My original interest sparked while working with Dr. Velthuis and performing literature reviews on effects of corporate activism on stock prices, and size effects on hedge fund returns. Since then, classes in Portfolio Theory and

In September, 2006, a large-sized hedge fund named Amaranth Advisors LLC lost $4.942 billion in natural gas futures trading and was forced to close their hedge fund. Although Amaranth Advisors was not exclusively an energy trading fund, the energy portion of their portfolio had slowly grown to represent 80% of the performance attribution of the fund. Their collapse was not entirely unforeseeable or unavoidable. Amaranth had amassed very large positions on both the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) in natural gas futures, swaps, and options. The trades consisted mainly of buying and selling natural gas futures contracts with a

Hedge funds feature returns different from those of mutual funds. The different trading strategies and investment styles are amongst a few factors that explain the difference (Boyson, 2010). The institutional and individual investors create a common pool of funds and employ professional managers to manage the fund. Ideally the manager is compensated from two sets of fees: management fee and performance fee. They impose a management fee based on the size of the asset managed, usually at the rate between 1-2%. A performance fee will be imposed at the rate between 20-30% of the returns on the investments made (lecture notes).

Hedge funds are investment vehicles that explicitly pursue absolute returns on their underlying investments. Hedge Fund incorporate to any absolute return fund investing within the financial markets (stocks, bonds, commodities, currencies, derivatives, etc) and/or applying non-traditional portfolio management techniques including, but not restricted to, shorting, leveraging, arbitrage, swaps, etc. Hedge funds can invest in any number of strategies. Hedge fund managers typically invest money of their own in the fund they manage, which serves to align their interests with