Sometimes, names can be misleading. Consider hedge funds, for example. The “hedging” in hedge funds’ day-to day-operations sometimes generates more risk, not less. How much more? Well, Long-Term Capital Management L.P. (LTCM), which had a great name that implied longevity and long-term thinking, had a fantastic team that counted not one but two Nobel Laureates in economics. Long-Term Capital Management ended up being relatively short-lived during the 1990s, lasting only about six years. Fast forward two decades. The hedge fund industry is alive and well, having survived not only LTCM, but also the Great Recession, during which many funds closed. Read More
Sometimes, names can be misleading. Consider hedge funds, for example. The “hedging” in hedge funds’ day-to day-operations sometimes generates more risk, not less. How much more? Well, Long-Term Capital Management L.P. (LTCM), which had a great name that implied longevity and long-term thinking, had a fantastic team that counted not one but two Nobel Laureates in economics. Long-Term Capital Management ended up being relatively short-lived during the 1990s, lasting only about six years. Fast forward two decades. The hedge fund industry is alive and well, having survived not only LTCM, but also the Great Recession, during which many funds closed. The industry has also weathered outright frauds such as the Bernie Madoff scandal. The modern hedge fund world is diverse. Some hedge funds (defined as private investment pools available to qualified, or “accredited,” investors) are similar, by composition, to mutual funds, albeit with more concentrated portfolios. Some invest in everything from stocks to bonds to real estate to gold and other commodities, and many continue using derivative strategies and hedging techniques. Leverage is not uncommon. These days, many hedge funds invest (and trade) in equities, and it’s normal to see a hedge fund or two among the top holders of… Read More