Hedge Fund History
Hedge Fund History Lessons
The Financial Times just released an interesting post on what we could possible learn from past financial crashes. While there are some key regulatory and restricted investing differences between the types of publicly available investments in the 1920's and now this article is worth a read. Here's an excerpt:
The current credit crisis has many reaching for their history books, seeking to find out what lessons might be drawn from previous financial disasters. There is a rich history of bank failures. What can history tell us about the $2,000bn world of hedge funds?
Some say the turmoil in financial markets could be a boon for shrewd hedge fund managers, allowing them to pick up assets on the cheap from distressed sellers. Others argue hedge funds are in a potential death spiral, with redemption demands from investors prompting asset sales which lock in losses, in turn prompting further redemptions and so on.
While hedge funds seem to capture perfectly the zeitgeist of contemporary capitalism, they actually have parallels in investment companies that flourished on Wall Street in the late 1920s. By 1929 a new investment company was being launched every day amidst frenzied demand from investors. These investment companies had a number of similarities to modern hedge funds.
First, the marketing of investment companies was based on promises investors would benefit from the investment expertise of highly skilled professional managers and advisers. Various investment companies even recruited noted economists and finance professors to provide investment expertise. Read more...