Hedge funds have been around since 1949 when they were invented by Alfred Winslow Jones. Not many know about hedge funds since only high net worth individuals can invest in them. Middle-class investors opt for the more familiar mutual funds through systematic investment plan (SIP) mode. What is not generally recognized is that hedge fund managers like Julian Robertson and George Soros have changed the way the world functions!
Sebastian Mallaby is the author of the best-selling More Money Than God: Hedge Funds and the Making of a New Elite (2010). According to him, hedge funds balance purchase of promising shares with “short selling” of unpromising ones. By being “long” some stocks and “short” others, the fund is at least partially insulated from general market swings (Mutual funds, on the contrary, are not allowed to go “short”).
Mallaby provides an enthralling history of the hedge fund industry, with a taut description of the major players: From Michael Steinhardt who flourished in the 1970s and 1980s before suffering a humiliating defeat in 1994 and after; to the legendary George Soros whose Quantum Fund shorted the British pound in 1992, bringing about its devaluation, and gained a profit of $1 billion; to Julian Robertson whose Tiger Fund focused on deep value investing and racked up legendary returns in the 1980s and 1990s; to Jim Simons who hired mathematicians and code breakers to decipher market moves and whose Medallion Fund was up 160 per cent in the 2008 crisis.
The role of hedge fund speculators in the Asian Crisis of 1998 is well analyzed. It must be remembered that Malaysian Prime Minister Mahathir Mohamad called George Soros a “criminal” and a “moron” for having instigated a currency crisis (by shorting the Thai baht) which later escalated into a full-blown banking crisis. The enormous influence that hedge funds wield in shaping regional politics was brought out in full force in the Asian Crisis.
Intertwined with the history of hedge funds is a debate on the Efficient Markets Theory (EMT). According to the EMT, any search for alpha is futile since the market price factors in all information related to the company. The history of hedge funds is the history of seeking alpha – the battle against the EMT (It must be remembered that last year’s Nobel Prize in Economics went to Eugene Fama who came up with the EMT and to Robert Schiller who showed that the EMT is all humbug; there was a third guy, I don’t know what he did).
Mallaby has written a wonderfully informative book on a secretive industry that ultimately does not have any mystery to it but plays by all the rules of conventional finance.
Sebastian Mallaby is the author of the best-selling More Money Than God: Hedge Funds and the Making of a New Elite (2010). According to him, hedge funds balance purchase of promising shares with “short selling” of unpromising ones. By being “long” some stocks and “short” others, the fund is at least partially insulated from general market swings (Mutual funds, on the contrary, are not allowed to go “short”).
Mallaby provides an enthralling history of the hedge fund industry, with a taut description of the major players: From Michael Steinhardt who flourished in the 1970s and 1980s before suffering a humiliating defeat in 1994 and after; to the legendary George Soros whose Quantum Fund shorted the British pound in 1992, bringing about its devaluation, and gained a profit of $1 billion; to Julian Robertson whose Tiger Fund focused on deep value investing and racked up legendary returns in the 1980s and 1990s; to Jim Simons who hired mathematicians and code breakers to decipher market moves and whose Medallion Fund was up 160 per cent in the 2008 crisis.
The role of hedge fund speculators in the Asian Crisis of 1998 is well analyzed. It must be remembered that Malaysian Prime Minister Mahathir Mohamad called George Soros a “criminal” and a “moron” for having instigated a currency crisis (by shorting the Thai baht) which later escalated into a full-blown banking crisis. The enormous influence that hedge funds wield in shaping regional politics was brought out in full force in the Asian Crisis.
Intertwined with the history of hedge funds is a debate on the Efficient Markets Theory (EMT). According to the EMT, any search for alpha is futile since the market price factors in all information related to the company. The history of hedge funds is the history of seeking alpha – the battle against the EMT (It must be remembered that last year’s Nobel Prize in Economics went to Eugene Fama who came up with the EMT and to Robert Schiller who showed that the EMT is all humbug; there was a third guy, I don’t know what he did).
Mallaby has written a wonderfully informative book on a secretive industry that ultimately does not have any mystery to it but plays by all the rules of conventional finance.
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