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What are hedge funds, and what social functions do they serve?

danwang.co

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Re: What are hedge funds, and what social functions do they serve?

#11

Post by Sniperfish »

The common definition of a hedge fund I encounter is they're designed to earn an absolute rate of return regardless of how the border markets are performing.

There are so many strategies (even down to use of derivatives, leverage, shorts, etc) employed by HF managers to achieve this that defining the HF industry by strategy doesn't seem viable.

Re: What are hedge funds, and what social functions do they serve?

#12

Post by scrumper »

[deleted] wrote: post #6

[deleted]

> Social is an useless word to include, and only invokes trolls to argue.

Some irony there.

Author addresses the point well: read the article and pay attention to later paragraphs which discuss liquidity provision, price formation, and market stabilization.

Re: What are hedge funds, and what social functions do they serve?

#15

Post by digikata »

danwyd wrote: post #4

Fairy long article. Here's the summary: Hedge funds are investment vehicles that have avoided being heavily-regulated because they only accept money from government-certified "accredited investors." Their investment strategies are secret and unconventional. Some of them deliver floods, while the average one doesn't do that well. Hedge funds provide liquidity, which makes it easier to trade; and conduct arbitrage, so…

If their investment strategies are secret, then how do we know that hedge funds haven't been bailed out by governments - at least indirectly? The secrecy makes it more difficult to evaluate if public policy could have been steered by politically connected hedge funds.

Re: What are hedge funds, and what social functions do they serve?

#19

Post by spuiszis »

scrumper wrote: post #9

Good article. For lay readers, perhaps you might include a definition of your usage of 'asset manager' (where you reference Blackrock). It's confusing if you don't know the terminology: a hedge fund manages assets sometimes on behalf of institutions, but it's not an institutional asset manager.

Good point. Although, I'd argue that more often than not, institutions (pension funds, funds of funds, etc.) are the ones investing in hedge funds rather than individuals. Usually there is a pretty high minimum investment (and needing to know the right people) that you won't be able to meet, unless you are a very high net worth individual. For example (ps this was a pretty big deal last week), CALPERs the largest U.S. pension fund, is leaving the hedge fund space and re-allocating the 10% of assets they allocated to it, to other strategies like Private Equity[1].

[1]http://dealbook.nytimes.com/2014/09/15/nations-biggest-pensi...

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