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Brief history of hedge funds

5 Feb

Putting it in a nutshell, hedge funds are designed to handle a wide range of trading and investing activities. It must be mentioned, though, that hedge funds are open solely for certain types of investors. Generally speaking, investors can deposit and withdraw funds regularly, and this is only one of the advantages of these investment funds. In this article I will present you a short history of hedge funds, from the beginning until now.

The first hedge fund was founded back in 1949 by Mr. Alfred Jones. Jones had the idea of creating investment funds in 1948, when he was working as a journalist and he was writing an article about the main trends in investment forecasting. It was then when Alfred Jones reached the conclusion that he could develop a more efficient system for managing money. The term “hedged fund” refers to a specific investment strategy that involved purchasing assets whose price was believed to increase and afterwards selling the assets whose price was about to decrease. By doing so, Jones wanted to minimize the risks associated with the trading industry.

Despite the fact that hedge funds were blossoming, the unique strategy developed by Jones was brought to the public eye in 1966, in an article about the success of Alfred Jones and provided statistics regarding the benefits of hedge funds. After the article was published, more and more investors became interested in hedge funds. Nonetheless, it turned out that this strategy was not suitable for just any investor, and most of them simply stopped doing it. As expected, the number of hedge funds dropped significantly.

Hedge funds started to gain popularity again around the 1990s. Even though the strategy is basically the same, new hedging tools have emerged and made hedging safer. In addition, the concept of hedging has remained the same as well: hedge funds are still very exclusive clubs and, as stated above, they are designed only for certain types of investors that are specified by regulators.