Hedge Fund Origin

Q&A: Where did the name hedge fund come from?

Alfred W. Jones is credited with coining the term "hedge fund" in 1949. Jones was the first known to employ portfolio managers while turning his company into a limited partnership. He outperformed his competitors by hedging his investments.

Jones used two strategies to minimize risk: using leverage to purchase stocks, and short selling to minimize risk. Thus, Jones hedged the market risk.

- Richard

Related Articles:

1. History of Hedge Funds
2. Hedge Fund Strategy Guide
3. Hedge Fund Terms
4. Hedge Fund Jobs
5. Hedge Fund Managers
6. Hedge Fund Industry Basics

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European Expert Networks for Hedge funds

Expert Networks

Expert Networks for Hedge Funds?

A growing trend in the hedge fund industry is the use of expert networks and independent hedge fund research by hedge funds. I have discussed the use of independent hedge fund research in the past and these expert networks are used by hedge funds for the same purpose, to give them more color on recent market/industry events and hopefully provide an information advantage over their competitors.Expert networks can consist of 25 to 1,000+ niche experts who are consultants, operational actors working in all types of industries or well connected leaders with valuable knowledge, insight, experience and information that could be valuable and a unique addition to the internal resources that a hedge fund might have access to.

Read dozens of additional articles like this within the guide to Hedge Fund Terms and Definitions.- Richard

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Hedge Fund Platforms

Hedge Fund Platforms

There has been a half dozen articles in the last year about private hedge fund platforms being setup or launched by firms such as the Man Group. There are really two types of hedge fund platforms being discussed, one allows hedge funds to trade almost any type of security through one portal and the other is the attempt to offer a selection of hedge fund managers with daily liquidity through a online portal for hedge fund investors.

A recent survey showed that over half of participating hedge funds expected a multi-asset class trading platform to be available within 2 years. I'm sure it will be sooner than that. There is a lot of money to be skimmed within a multi-asset class platform and many hedge funds would pay a premium for more anonymity and speed in trading across assets within one account.

I would be surprised if HFN, HedgeCo or Eureka wasn't already investing in figuring out how to create some sort of limited use hedge fund platform aimed to be used by individual hedge fund investors. The demand is there for whoever can release this first and start moving up the learning curve on making it work with a diverse range of hedge fund managers who are large enough to handle more frequent investments and redemptions from investors. Does anyone know of a hedge fund company besides the Man Group is putting together such a platform?

- Richard

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Hedge Fund New York | Guide to Hedge Funds in New York

Hedge Fund New York

Geographic Focus: Hedge Funds in New York

This page was created to serve as a central location for information about New York hedge funds. I don't have a complete list of hedge funds in New York yet, but I am starting to collect resources relevant to new york hedge funds. While this page is light at this point I hope to develop it further down the road.

For a list of hedge funds in New York with contact details please see this page: List Directory of Hedge Funds in New York.


Lists of Hedge Funds in New York

1. Hedge Funds in New York
2. Another list is available here: List Directory of Hedge Funds in New York

New York Hedge Fund Networking Groups

1. Hedge Fund Group (HFG)

Hedge Fund Job Listings

1. eFinancial hedge fund careers in new york
2. Hedge Funds Review NYC Jobs Listings: http://jobs.hedgefundsreview.efinancialcareers.co.uk/Hedge_Funds/USA-NY-New_York_City.htm
   

Hedge Funds & New York - Articles:

1. NYC hedge funds profits reveal tax system flaw: http://www.reuters.com/article/bondsNews/idUSN1520541220080415
2. New York Magazine NY hedge fund managers buying expensive items: http://nymag.com/news/features/2007/hedgefunds/30346/
3. Hedge Fund Intelligence Press Release-NYC has extended its lead as the center for hedge fund activity: http://www.hedgefundintelligence.com/Stub.aspx?StubID=2321
4. Hedge Funds for Habitat for Humanity; hedge fund managers in new york work for habitat for humanity: Hedge Funds for Habitat NYC
5. Hedge Funds in New York Article http://richard-wilson.blogspot.com/2008/05/hedge-funds-in-new-york.html
6. Here is a recent article From my friends at Fin about hedge funds in New York. It reports that New York now houses over 25% of the hedge fund industry.

Hedge Fund Events In New York

1. Hedge Fund Investors awards on Wall Street, NY: http://www.iialternatives.com/ain/2008awards/
2. Women and Wealth Forum 2008 focus on hedge funds, NYC: http://www.iievents.com/event_details.asp?eventID=705306&awd=FALSE&wk=FALSE&bb=FALSE
3. Fund of funds business operations forum, May, NYC: http://www.frallc.com/conference.aspx?ccode=B606
   

- Richard

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Hedge Fund Administrators

What are Hedge Fund Administrators?

Hedge fund administrators offer a way to reduce tedious time-consuming operational activities for hedge fund managers, while simultaneously bolstering the average investors' confidence in a hedge fund. The role of a hedge fund administrator is to provide financial and tax reporting. Such reporting includes: audits and coordinating taxes; anti-money laundering as well as the new know-your-client procedures. While these are important duties for a hedge fund, outsourcing to a hedge fund administrator allows hedge fund managers to pay more attention to managing the investment portfolio and servicing clients.

The hiring of a hedge fund administrator can significantly consolidate operational staff and reduces excess administrative expenses for hedge funds. Sometimes when hedge funds need to add additional staff, a hedge fund administrator is often able to arrange specialized, trained professionals and access to valuable accounting services. Some investors only invest in hedge funds who use hedge fund administrators. The third-party verification of a hedge fund's operational structural that this administrator represents to investors is invaluable.

Read dozens of additional articles like this within the guide to Hedge Fund Terms.

- Richard

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Hedge Fund Returns

Hedge Fund Returns

Many mainstream, well respected media outlets jump at any chance to dance on the graves of hedge funds who have recently shut down or seen poor performance. This comes at the cost of showing a realistic macro view of the health and growth of the hedge fund industry. I have mentioned this several times before and it is one of the reasons why I write in this hedge fund blog. Here are some of those related articles:

• Hedge Funds Failing or Thriving?
• Hedge Funds - Kinds of the Jungle
• Alternative Assets Outperform

The Euromoney Institutional Investor Network seems to think along similar lines as myself as they published an article earlier this month on how claims of the demise of the hedge fund industry are highly inflated. Their article was written in response to a FT article by Martin Wolf. Martin Wolf is one of the FT's leader writers, and wrote: "Hardly a week goes by without the implosion of a hedge fund. Last week it was Carlyle Capital, with an astonishing $31 of debt for each dollar of equity. These collapses are inherent in the hedge-fund model. It is even conceivable that this model will join securitized subprime mortgages on the scrap heap."

Since there are over 15,000 hedge funds applying over 200 distinct strategies with performance beating most mutual funds, equity benchmarks and slew of other investment types I don't see them going anywhere any time soon. At worst I see a small contraction in the fees that mid-market hedge fund managers are able to charge.

Riskdata, a risk analytics firm agree stating that hedge fund returns"show massive outperformance" by hedge funds for more than 15 years. "They outperform all asset classes, even after payment of all management and performance fees to the fund managers." Riskdata also said "Simply consider the following fact: the worst month for hedge funds has been Long-Term Capital Management (-7%), the worst day for equity has been black Monday (-20%)." "Mutual funds lost much more in the recent period than hedge funds. Hedge funds are so far the best investments to secure our pension plans—considering their long term performance. One could say that just going back to the old world would be like going back to old monopolistic telecoms as an answer to the Worldcom bankruptcy."

Bottom line. When you read about hedge funds disappearing or "imploding daily" check the real data on what is going on through a major hedge fund database before believing what you read.

Read more articles like this within the Hedge Fund Performance Category of this hedge fund blog.

- Richard

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Family Offices

Family Office

Virtual Family Office Trend

Close to 10% of my hedge fund blog web traffic arrives via searches for family office information or contacts of some type. More high-end wealth managers seem to be taking a family office approach to managing a wealthy family's total financial exposure and budgeting instead of simply suggesting the most appropriate separate managed account or hedge fund product that they are familiar with.

One of the difficulties of doing this is building up the relationships and trust within a body of experts that can handle the tax, budgeting, reporting and accounting work required to really be able to offer a complete family office experience to high net worth individuals. There are a few firms that now utilize loose networks to provide this service and I see this trend growing very quickly over the next 5-7 years because it allows wealth management firms to give more complete services to less clients while making more money. When done right, everyone wins. I think it would help everyone do business more effeciently if there were 3-5 competitors online who all offered virtual family office services on a national level. Does anyone do this right now? I'm not sure, let me know if you have heard of a family office with this setup, I would like to take a look just out of curiosity.

I'm also collecting lists of family offices to create a free resource here. If you have any lists you could provide to me or online directories to point me towards please let me know. I'm not looking to replace a database company's product, I simply want to list out the top 100 family offices in the US, EU, Asia, etc. Thanks in advance if you can be of any help.

- Richard

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Sovereign Wealth Funds

Davos 2008 on Sovereign Wealth Funds

Here is a interesting 60 minute video on sovereign wealth funds from the Davos convention earlier this year. Video: http://youtube.com/watch?v=tT5IFD4DFFQ

Tired of reading articles? Watch more videos like this one above within the Hedge Fund Videos Directory.

- Richard

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Sovereign Investment Funds

Video - Sovereign Investment Funds

Here is a detailed 10 minute video on sovereign investment funds, why they are treated with more caution than non-US hedge funds, current concerns regarding their investments and what is to come over the next 10 years. Video Link: http://youtube.com/watch?v=ZULPtGm36rM

- Richard

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Asset Allocation Diversification

Hedge Fund Diversification

Asset Allocation Diversification is the allocating of investments to various asset classes such as stocks, bonds, and cash. Investments can also be diversified by strategy; growth, value, blend, etc. Geographic diversification involves investing in various regions, states, countries, continents, etc.

Within asset allocation diversification there are multiple styles that can be utilized. involves having multiple investments within the same “class.” Holding different companies with the S&P would be indicative of broad horizontal diversification while owning several stocks within the health care sector would be more representative of narrow horizontal diversification.

Vertical diversification is characterized by owning multiple classes of investments. The typical stock and bond portfolio is broad vertical diversification, while having a portfolio comprised of stocks of different branches is an example narrow diversification.

Diversification can be measured by the probability of how the various investments within the portfolio can be expected to perform in relation to each other (i.e. correlation).

Read dozens of additional articles like this within the guide to Hedge Fund Terms.

- Richard

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Hedge Fund Sales

Hedge Fund Sales Video

Jeffrety Gitomer is my favorite sales trainer. I have read 6 of his books and try to use his advice each day within my hedge fund marketing & sales job. His advice is what drove me to write a book during my MBA program, throw out my t.v. and invest myself daily in things like reading, blogging and evening school programs instead of spending it on things like "The Office" or "American Idol." Hedge Fund Sales Video: http://www.youtube.com/v/Y6hhYQI9oJE&hl

Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with details on third party marketing within the Hedge Fund Marketing Guide.

- Richard

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Tired of reading articles? Watch more videos like this one above within the Hedge Fund Videos Directory.

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High Net Worth Investors

Due Diligence For High Net Worth Investors

I just found a resource on conducting hedge fund due diligence for high net worth portfolios. It is not a complete guide to conducting this type of due diligence but I think they brought up many good points within this article. A hedge fund investment should be utilized to improve the efficient frontier of an accredited investor’s portfolio and protect against downside risk by the allocation of a segment of the portfolio appropriate to the client’s risk tolerance. Both quantitative and qualitative due diligence are essential to protect a client’s investment against fraud, divergence from stated strategy, and/or poor investing.

A fund of hedge funds investment can offer diversification, and innate due diligence, within the hedge fund investment by limiting the allocation that any single fund can hold. A fund of funds downside comes from the layering of fees and the more apparent lack of transparency that’s prevalent with many funds. In addition, the preeminent hedge funds are often hard to locate because they are often available by referral only.

The correlation of a hedge fund with traditional benchmarks is a vital component in due diligence. One must also be aware that although stated pre-tax returns of a fund may be appealing, short-term trading can destroy the tax efficiency which is critical to high net worth investors. Research into the operation of the hedge fund manager and their performance in varying markets and well as tactical ongoing analysis of the fund’s performance are imperative to quality due diligence.

- Gregory Schink & Richard Wilson

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Hedge Fund Manager Due Diligence

Ongoing Hedge Fund Manager Due Diligence

I recently found a great article on hedge fund manager due diligence, it focused on ongoing hedge fund manager due diligence. When reviewing a hedge fund, process transparency is crucial to the method as risk transparency. Institutional investors must hold the prerequisite that their investments meet the prudent man standard. They need to understand; what a hedge fund manager’s abilities are; is there a process for measuring and assessing risk as well as reward; the manager’s strategy and allowable deviations from it; the safeguards in place to shun fraud; that the people operating the hedge fund are honest.

Some additional topics to consider are alpha generation, risk measures, risk mitigation strategies, basis of performance, warning signs, imploding scenarios. Some classic due diligence topics include, how risk is managed, recovery plans, max leverage, and risk transparency.

Ongoing due diligence and intelligent manager selection are the most crucial parts of the process. In depth knowledge of the specific strategy being used as well as awareness of how hedge fund managers “operate” are key qualities one must possess to perform true hedge fund due diligence and exam all inherent risks involved. Evaluation of how these risks are supervised by the manager is an essential part of the procedure as well.

- Gregory Schink & Richard Wilson

Read more articles like this within the Hedge Fund Due Diligence Guide.

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Hedge Fund Research

Hedge Fund Research Trends

The hedge fund industry is intensively competitive. Depending on who you ask or who you cite there are now between 10,000 and 15,000 hedge funds now in the industry. This rivalry comes to a head while hedge funds compete for large investments by institutional investors. Institutional investors spend months analyzing the investment processes and information/research advantages and resources that hedge fund managers have at their finger tips to give them an advantage in the markets.

To provide their portfolio managers and analysts with unique research and insights hundreds if not thousands of hedge funds are using a handful of niche research groups. There are over 50 of these well established niche trading research groups in the US and EU, and this business is thriving right along with the hedge fund industry as a whole.

Not to be confused with hedge fund due diligence which is the analysis of hedge fund managers and their businesses, hedge fund research groups help hedge fund portfolio managers and traders gain unique insight into a wide range of markets, instruments and asset classes. I have met several of these research firms through the Hedge Fund Group (HFG) and writing here in this hedge fund blog.

Types of Hedge Fund Research

• Commodity Currency Hedge Fund Research
• Retail Sector Hedge Fund Research
• Global Macro Hedge Fund Research
• Emerging Markets Hedge Fund Research
• BRIC Hedge Fund Research
• Russian Hedge Fund Research
• Micro Cap Hedge Fund Research
• Metals Hedge Fund Research
• Real Estate Hedge Fund Research
• International Equities Hedge Fund Research

Let me know if I can help you network within the Hedge Fund Group (HFG) or connect with a hedge research firm in the industry. If you have any whitepapers or statistics on hedge fund research please send them to Richard@RichardCWilson.com.

Read dozens of additional articles like this within the guide to Hedge Fund Terms and Definitions.

- Richard

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Financial Analyst Specialist (FAS)

Financial Analyst Specialist Designation

The Financial Analyst Specialist (FAS) designation program is the  most practical, challenging, and globally relevant online training program that provides participants with financial analysis business best practices, lessons and tools to online participants.

The best part? The Financial Analyst Specialist designation can be completed from anywhere in the world, 100% online and at the participant's own pace, allowing busy financial professionals to take a demanding course without demanding that participants halt their work and personal life to complete it.

The Financial Analyst Specialist (FAS) was created by two talented and highly-experienced career financial analysts in order to offer valuable training to professionals on financial analysis.  If you would like to learn more about the Financial Analyst Specialist program, click here.

You may also be interested in the other programs from BusinessTraining.com's Finance Department including:

• Financial Analyst Certification
• Financial Modeling Certification
• Certified Hedge Fund Professional
• Certified Private Equity Professional
• Investment Banking Professional

Tags:  Financial Analyst Specialist (FAS), Financial Analyst Specialist, Financial Analyst Specialists, Financial Analyst Certification, Financial Analysis Specialist, Certified Financial Analyst, Certified Financial Analysis

Hedge Fund Collapse - Survival of the Fittest

Hedge Fund Collapse

Survival of the Fittest Hedge Funds

In 1859, Charles Darwin introduced his theory on “On the origin of species” through this now famous preamble: As many more individuals of each species are born than can possibly survive; and as, consequently, there is a frequently recurring struggle for existence, it follows that any being, if it vary however slightly in any manner profitable to itself, under the complex and sometimes varying conditions of life, will have a better chance of surviving, and thus be naturally selected.” The (very non organic) species of the hedge fund industry have been aptly playing out this struggle for existence over the last few months as famous names such as Peloton Partners, Carlyle Fund, Carrington Capital, Amaranth Advisors and the mother load at Bear Stearns end up in the obituaries column of financial journals. The much vaunted “strategy” which typifies the various hedge fund species be it equity long-short, event driven, arbitrage or other clearly needs to evolve to be naturally selected under the current complex and varying conditions of the market. As an example, consider Andrew Lahde’s Lahde Capital Management, a California based hedge fund: by betting against sub prime, his fund returned over 1000% in 2007 to investors. Mr. Lahde is already developing other contrarian strategies to prepare for the market’s next set of probable directions.

On March 18, Martin Wolf wrote in the Financial Times that collapses are inherent in the hedge fund model because hedge fund managers have thus far been more lucky than skilled. I believe there definitely is a certain percentage of Alpha seeking managers who are indeed truly skilled but a large majority of managers have ignored the lessons of the efficient market hypothesis or unlike my MBA students have skipped class when the classic Black-Sholes option pricing model was being discussed. I have always argued that Alpha is a constantly moving target and seekers of Alpha may want to study Heisenberg’s uncertainty principle which describes how the momentum of an uncertainly moving target may be described more accurately through a probabilistic distribution rather than an assumed intermittent occurrence. This failure of managers to constantly seek a changing alpha which may occasionally have low probability occurrences will result in an extinction of their species.

The fittest species to survive in the hedge fund universe will be those who, as Darwin wrote, “vary however slightly in a manner profitable to itself” or in other words constantly seek Alpha by having an evenly spread probabilistic distribution of returns rather than maximize returns from higher probability events. Indeed this will be the species that will not only survive but also thrive. - Guest Blogger Eric Abhyankar

Eric Abhyankar is a professor of finance at the University of Northern Virginia, Prague and provides consulting to the funds industry on finding new markets for asset gathering.

- Richard

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Hedge Fund Newsletter

Hedge Fund Newsletter

I know some of my frequent site visitors are already part of my hedge fund newsletter, but as I speak to people within the Hedge Fund Group (HFG) and those who email me directly from my blog most people were not aware that one was offered through this website on hedge funds.

The free hedge fund newsletter that I produce is different from other great newsletters on hedge funds that you might read. I don't use RSS news feeds and I don't re-hash stories first reported on by other organizations. For better or worse, I have decided not to compete with Google News and only write about and aggregate educational materials on the hedge fund industry. Each day I write 1-5 articles on hedge funds, and what is written is sent out the next morning via the hedge fund newsletter.

The newsletter is free to join and you can unsubscribe at any time. To subscribe please click below

Free Hedge Fund Newsletter Subscription

- Richard

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Alternative Investments Research

Alternative Investments Research

Northern Trust recently released its annual Wealth in America survey and it showed that younger Americans see hedge funds and alternative investments much different than the typical baby boomer. Younger investors were more likely to invest in hedge funds, be satisfied with the returns they were getting from hedge fund managers and allocate 25% of their total portfolio to alternative investments.

This is one more positive sign for the hedge fund industry. Over the next twenty years this younger generation will be growing wealthy and controlling a larger percentage of retail assets, which might provide strong flows into hedge fund products.

- Richard

Article Source: Investment News, February 2008. Page23

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Hedge Fund Risk

Hedge Fund Risk

Here is a short video on a hedge fund group in London called Peleton Capital. It is an interesting story because it is true within many areas of the hedge fund industry, if you are running with a pack of other traders or invests and the leader gets tripped up you my fall as well. http://www.youtube.com/v/qoFKeljB5Ig&hl=en

Tired of reading articles? Watch more videos like this one above within the Hedge Fund Videos Directory.

- Richard

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Hedge Fund Markets

Hedge Fund Markets

Here is a panel session from the World Economic Forum discussing who is really in charge of the world economy and avoiding widespread systemic risk. Many of what is discussed effects hedge funds and the hedge fund markets in general: http://www.youtube.com/v/ly3W8SwNPKk&hl=en

- Richard

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