The early hedge funds -- the ones that have been around for 30+ years (and some of them still exist) -- started out buying convertible bonds (or cv pfds or warrants) and shorting stock against them. They actually hedged. Then as markets changed / developed, more strategies were added.
Wait, this can't be. Angrycat swears most people on Wall Street are highly competent and worth every dollar they make, including non-performance related bonuses, and the incompetent ones are the minority. 80% is a majority, and given that they didn't know what the term 'hedged' properly meant, that is just incredibly hard to believe. Has Angrycat got it all wrong? My faith in the system derived from Angrycat's confidence-inspiring words of assurance is getting its first real test...
I already think that most people in the financial markets are ignorant and stupid, so this doesn't change anything.
The majority of hedge funds don't really hedge per say. Most of todayââ¬â¢s 'hedge funds' are simply speculative mutual funds. They call themselves hedge funds so they can bypass the rigorous regulations of the mutual fund world.
i don't trade for a hedge fund. however, lets just say i know a few hedge fund investors and how they view the funds. surf
sorry for the confusion. i was speaking from an investors perspective. the funds are used to hedge other holdings, less and more speculative holdings--hence hedge funds. by the way, 85% of all hedge funds are merely long/short funds and don't do anything more exotic. surf
Hedging, in a speculative context, does not mean systematically eliminating all risk - if you do that, you get t-bill returns, and no one is going to want to pay 2 and 20 for 0% per annum. In the speculative context, a hedge fund is something that tried to make returns without taking outright stock market risk i.e. it tries to earn alpha, and then hedges away as much beta as possible. First example was Alfred W. Jones in the 1950s, he went long his favourite stocks and short his least favourite, trying to make money on stockpicking without having any outright market exposure. The idea is that a good hedge fund manager will make money whether the market is up 30% or down 30%. Contrast with a conventional investor, who may make the same long-run return, but will be highly correlated to the market. A good example is John Paulson who made money in 2007 and 2008 with a long/short portfolio and some additional CDS bets, regardless of the performance of the S&P. George Soros and Julian Robertson also had good performance, again uncorrelated to the market in these years. Over time other approaches evolved such as convertible arbitrage, which hedges in a different way but similar conceptually, and then event-driven and global macro, which do not hedge at all, but they are almost entirely independent of stock market returns, hence they got lumped into the "hedge fund" monicker - somewhat inaccurate but from an investor perspective it makes some kind of sense. Finally we saw the emergence of pure long only "hedge funds", which not only don't hedge, but are highly correlated to the market, and thus should not be called hedge funds at all. Neither the investors nor the managers are doing any kind of hedging by investing in these funds. The definition referred to in this article is purely for commercial operators who do not invest or bet on prices at all. E.g. a farmer who hedges his crop forward each year, or a Nestle hedging their cocoa purchases in advance. They are not trying to earn a return above the market, they are trying to minimise risk so they have more stable cash flow and profit. This has nothing to do with hedge funds and never has, so the author is a clueless moron for assuming it.
hey turkeys. they all know what hedge means. but guess what if they hedged that would flatten the p&l and cost them fees. simple as that why complicate things. 95% of these guys are simple thieves.