Hedge Funds rely on enormous bulks of information and top-notch data analysis
A fund is a common pool of underlying securities from which a group gains benefits. For instance, a pension fund is an endowment that invests in safe stocks and products to provide dividends enough to fulfill the promise of retirement of most people. A mutual fund is a type of fund that pursues personal benefits for its participants and involves a higher level of risk as its main purpose is to create wealth for its participants.
Taking said concept, but exacerbating it, you get a Hedge Fund. These types of funds are fully private, non-regulated by the SEC (U.S Securities Exchange Commission), and only welcome the most sophisticated investors. A Hedge Fund pursues only the greatest possible dividends often incurring in otherwise unfeasible high risks and aggressive investment techniques.
It is common for a Hedge Fund to operate with long and short strategies; to take a long stance means the group decides that buying a stock or derivative is a good idea as its value will increase in time, as when a fund takes a short position means that they’ll borrow a stock, or derivative, and instantly sell it under the premise to pay it back later in time when the asset has devaluated thus making a profit from the selling.
Far from modest, the world’s top five exclusive hedge funds hold Assets Under Management (AUM) for nearly 200 billion dollars. These funds are: Bridgewater Associates in Westport USA, AQR Capital management in Greenwich USA, Man Group in London, Two Sigma Investments and Millennium Management in New York USA.
At glance, Hedge Funds are enormous and highly responsive money conglomerates that aim to exploit every failure in the market. Hedge Funds often use a technique called leverage, where they place a bet of a given value and multiply the size of the bet to amplify the effect of its earning and losses.
It’s not uncommon for a Hedge Fund to bet against a “overrated” company for more money than the company is worth. If right, it’ll take the corporation into direct bankruptcy. Far from “evil” or “mean”, Hedge Funds help the markets to be efficient and transparent.
If you wish to invest in a Hedge Fund, you must have a disposable net worth of at least one million dollars, possess knowledge in financial markets, sign to lose possible control of your money -Hedge Funds often close the possibility of claiming the client’s own money- and pay fees of up to 50% of the profits plus administrative fees.
Ray Dalio, Bridgewater Associates CEO and founder predicted the 2008 global financial crisis and gave his stakeholders interesting dividends from it. Hedge Funds rely on enormous bulks of information and top-notch data analysis, what makes them maybe the strongest players on the financial markets.
Latin American Post | David Eduardo Rodríguez Acevedo
Copy edited by Susana Cicchetto