Country: United States
Email: [mailto:email@example.com firstname.lastname@example.org]
Title: Hedge Fund
It was the innovative idea of Alfred W. Jones that brought about the first hedge fund of the globe. Developed in 1949, this fund used both the techniques of short sale and leverage. The concept achieved popularity when it was seen that this fund outweighed all others in the category of mutual funds.
A private investment fund that need not abide by the rules and regulations imposed on mutual funds may be termed as a hedge fund. The use of different techniques of hedging done in order to achieve maximum profit is the reason behind this name of the fund.
What sorts of strategies are used in a hedge fund? There are a number of methods that are utilized by these funds to gain profit. Some of these are as follows:
Use of arbitrage – the aim is to exploit the inefficiencies in pricing that exists between related securities.
Use of short selling – here the goal is to buy back the shares that you have sold at a price lesser done on the speculation that their prices would drop.
Use of derivatives – these are dependent on how an underlying asset or investment performs in the market.
Use of discounted securities – the investment is done in companies that are about to enter or exit a financially difficult phase.
Use of a specific financial event – this is done at the stage of anticipation of events like a hostile takeover or a merger of two businesses and so on.
The first hedge fund to be listed in the US was the one created by the Fortress Investment Group. It accumulated about $634 million. These funds are estimated to be an industry involving more than $1 trillion and are rapidly growing with each day.
The New York Stock Exchange witnessed the increasing popularity of this trend when it recorded that more than half of its daily turnover was from the trading activity of the numerous hedge funds present.
Whether it is a rising or a falling market, whether it involves bonds or equity, a hedge fund is a profitable investment. Moreover the profits generated from these funds are usually much higher than that of mutual funds.
But there are certain criteria that an entity needs to meet to become eligible as an investor in a New York hedge fund. You need to be an accredited investor or a qualified purchaser to do this kind of investment.
You can become an accredited investor if you have a net worth of more than $1 million. Alternatively you may have assets worth more than $5 million or your past earnings (at least for the last 2 years) were more than $200,000 on a per year basis.
A qualified purchaser is an individual or a business that has more than $5 million in terms of investments. Or in case it is a business with discretion in investments worth a minimum of $25 million. A trust formed by a group of qualified purchasers may also qualify as an investor in a hedge fund.