Hedge Fund Importance

Hedge fund is “an investing group usually in the form of a limited partnership that employs speculative techniques in the hope of obtaining large capital gains.” In other words, hedge fund uses its intricate financial technologies with the small amount of money to make the greatest profits as possible by investing and selling securities at the appropriate moment. Its foundation lies on the purpose to seek the absolute financial profits regardless of the economy situation. It can be seen as a zero-sum game since it either makes or lose huge amount of money in the market. In 1949, Alfred Winslow Jones, a Harvard graduate U.S. diplomat, first founded hedge fund, raising $100,000 from investors. Having made more and more profits from investing, after seventeen years, in 1966, Jones caught public eye in a Fortune Magazine article that mainly dealt with his investment success story. Jones “outperformed the best performing mutual fund that year by 44% and the best five-year performing mutual fund at the time by 85%, net of all fees.” Due to its huge success, the number of hedge funds increased dramatically. At the end of 1999, the number of hedge fund firms was estimated to be more than 2,600, and the unofficial number of them was

Therefore, it is undoubtedly necessary to recognize the importance of hedge funds so that all governments of each nation have appropriate laws or regulations accordingly. 2. How Hedge Funds Seek Profits

The following table proposes the annual returns and risks by hedge funds from 1996 to 2000. Most of the annual returns mark positive percentage, meaning that hedge funds had created huge amount of profits. The amount of returns depends on what kind of fund style hedge funds pursued.

Table 1: Risks and Returns by Hedge Fund Category