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Hedge Funds and Their Role in 2008 Financial Crisis
Finance & Accounting
Pages 3 (753 words)
Hedge funds are private investment funds that trade in stock market and formulate many strategies to earn absolute profits regardless of whether the market moves up or down. They are not regulated in the same sense as mutual funds.
They are not regulated in the same sense as mutual funds. Mostly, high net worth individuals and some pension funds invest in hedge funds. It is not mandatory for them to be registered with the Securities and Exchange Commission because they are not supposed to provide information regarding their operation and valuation in public. The paper tries to explore the early history of hedge funds and how prima facie they are different from mutual funds. The paper also focuses on their role and the impact they created during 2008 financial crisis and also what regulatory measures are currently in force to regulate them. Genesis of Hedge Funds Mallaby emphasizes that Alfred Winslow Jones was the first global hedge-fund manager starting his operations in 1949 without any formal qualification and perhaps he set the tone and style of the functioning of hedge funds that are in vogue today. His way of charging the performance fee was different wherein a straight 20 percent cut was made on net gains while distributing the profits. This deduction was over and above the management fee and even today most hedge-funds continue to have their performance fee policy in the same line. The fund was called so because all along investments were hedged simultaneously – short-selling some of the weaker stocks to mitigate the systemic risks. He used leveraging as a tool to hedge investments. ...
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