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Hedge Funds Hedge funds have been around at least since 1949 when a sociologist and writer for Fortune, Alfred Winslow Jones, formed an investment partnership that laid claim to being the first hedge fund. As investments, hedge funds defy simple classification. First, as the Securities and Exchange Commission and the Investment Company Institute make clear, hedge funds are similar to but quite different from mutual funds. Although starting February 1, 2006, hedge funds will be increasingly subject to registration with the SEC, the majority will still be subject to far less regulatory oversight than mutual funds. The lack of registration has far reaching implications for investment management latitude and fees charged to investors. So far, most hedge funds have restricted investment to wealthy investors by imposing high initial investments. At the same time, because of the growing emphasis on alternative investments that can produce returns independent of both the stock and bond markets, institutional and individual investors are having to consider hedge funds and the strategies they pursue. Because of the lack of regulation, high management fees and risky investment practices, great care must be taken in using hedge funds.A Hedge Fund Primer has been prepared by the institutional investment management consultant CRA Rogers Casey, and the Financial Economists Roundtable has released a cautionary statement about hedge funds that should be read. Also, here is a useful short glossary of terms peculiar to hedge fund investing. Hedge fund indexes are relatively new, quite varied and very controversial. Even so, indexes from reputable providers, such as CSFB/Tremont, DowJones, Edhec, MSCI and S&P, can be useful in an attempt to track the performance of the many strategies followed by hedge funds. |
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