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The
term hedge fund dates back to the first fund that was
founded by Alfred Winslow Jones in 1949. He is popularly
known as the father of hedge funds. He innovated that
to sell short trading stocks while buying other securities,
can hedge certain market risk. The long/short investment
strategy implied investing long in undervalued equities,
while trading short in overvalued securities. Hence,
as such there is no exact definition of the term hedge
funds. Neither the federal nor the state security laws
of the US have defined hedge funds. The technique of
hedging is the practice to reduce risk, with a goal
to maximize returns.
In
the global financial markets the term "Hedge Fund"
does not necessarily mean any use of "hedging",
as universally understood. A hedge fund is commonly
known to be any type of private investment pool without
much statutory regulations, often in the form of a partnership
rather than in the form of a corporation. It is characterized
by employing different types of non-traditional strategies
that try to offset risk associated with trading other
than investing in equities, debt securities or money
markets. They are often referred to as "alternate
investment vehicles" and are characterized to meet
the needs of sophisticated and wealthy private investors.
In short, the hedge funds are private investment pools
subject to far less regulatory oversight. The special
feature of hedge funds is the application of unconventional
strategies in relation to their investment portfolio.
A suitable portrayal could simply be conveyed as "any
unregistered, privately-offered, managed pool of capital
for wealthy, financially sophisticated investors".
They employ extensive selection of trading strategies
and they strive to take advantage of market inefficiencies
to achieve targeted returns. But in the present scenario,
the hedge fund managers employ the strategy of trading
stocks both long and short. |
