Evolution of hedge funds, Financial Management

Assignment Help:

Evolution of Hedge Funds:

The establishment of the first Hedge Fund in the United States in the year 1949 by Alfred W. Jones marked the evolution of Hedge Fund industry. It was setup as a general partnership to avoid regulatory tussle from the SEC and later converted into limited partnership. Jones strategy consisted of long and short strategy in order to Hedge market risk, such that it facilitated taking a long position in the undervalued stocks and a short position in the overvalued stocks. Thereby, Jones shifted most of his exposure from market timing to stock picking. In 1966, an article published in the fortune magazine showed the retunes generated by Jones' fund which shocked the whole investment community. The fund significantly outperformed other traditional investment vehicles after paying performance related incentive fee. During the 10-year period from 1955-1965, Jones' Fund returned 670 percent compared to the Dreyfus Fund, which only returned 358 percent and other top mutual Funds. This led to a rush for setting up a large number of Hedge Funds.

Since then, the Hedge Fund industry has gone through many periods of rapid growth (1966-68, late 1980s, and early 1990s) and contraction (1969-70 and 1973-74). Most of the early Hedge Funds perished in the stock market crash of 1969 and early 1970s due to heavy losses as they followed only long strategy in the ageing bull market. Industry slowly recovered from the crash and the popularity of Hedge Funds came into limelight. A review article that published in Institutional Investor listed out impressive returns given by the Julian Robertson's Tiger Fund against Standard and Poor's (S&P) 500. Her investment approach was purely consisted of market directional bets with no hedging policy. The Fund had delivered a compounded return of 43 percent in the first six years of inception compared to the S & P 500's 18.7 percent compounded return for the same period.

 


Related Discussions:- Evolution of hedge funds

Short sales, Short sales  : Short sales of a security means borrowing o...

Short sales  : Short sales of a security means borrowing of an underlying security by an investor from other investors who are holding it (in Demat account) and selling it with

Calculation of weighted average cost of capital, Calculation of weighted av...

Calculation of weighted average cost of capital (WACC) Market values Market value of equity = 5m × 4.50 = $22.5 million Market value of preference shares = 2.5m × .0762 =

APR and EAR, Assume a bank charges a 15.5% APR (annual percentage rate) on ...

Assume a bank charges a 15.5% APR (annual percentage rate) on credit card holder compounds quarterly. What EAR (effective annual rate) is the bank is charging? What if they change

Types of working capital, TYPES OF WORKING CAPITAL Working capital can ...

TYPES OF WORKING CAPITAL Working capital can be split up into two categories on the basis of time. They are Permanent Working Capital and Temporary or Variable Working capital

Can you explain dispersion method, Q. Can you explain Dispersion method? ...

Q. Can you explain Dispersion method? Dispersion method help to assert risk in receiving a return on investment. The greater the potential dispersion, the greater the risk. One

Foreign exchange markets, At current interest rates and exchange rates...

At current interest rates and exchange rates, the US might have a $400 billion net financial (capital) account inflow from the rest of the world during 2010, and the

Assessment of in individual strengths and weaknesses, Assessment of in indi...

Assessment of in individual strengths and weaknesses Before finalizing career plan for an individual and placing him on career path, it is necessary to access his strengths and

Calculate the percentage of price change and regular bonds, Flying High Inc...

Flying High Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will ha

Show the supposition of mm hypothesis, Q. Show the Supposition of MM Hypoth...

Q. Show the Supposition of MM Hypothesis? Supposition of MM Hypothesis:- (i) There are ideal capital markets. (ii) Investors act rationally. (iii) Information regardin

What is the annual tax shield, what is the annual tax shield to a firm that...

what is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million,if the average interest rate on debt is 8.5% and the marginal tax rate i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd