in assets as of Jan. 1, 2007. Globally, assets

under management is as high as $2 trillion. Hedge funds have grown to the

point where they are considered one of the biggest players in nearly every

marketstocks, bonds, commodities and derivatives.

Hedge funds are considered an alternative investment vehicle.

alternative investment is the general term under which unregulated funds

operate; this includes private equity and real estate funds. The total

alternative category (which would include private equity and real estate) is

not covered within the scope of this book but it is useful to know that often

people refer to hedge funds as an alternative investment.

are investment funds that everyday investors can purchase; mutual funds are

Since the early 1990s, hedge funds have grown tremendously, not only in

terms of assets under management, but also in the amount of media attention

theyve garnered for their brash strategies and the massive returns many have

generated. Although they may remain a mystery to the general public, their

effect on the global marketplace is felt more strongly with each passing day.

Hedge fund managers are constantly trying to find new ways to take

advantage of the markets inefficiencies in order to generate absolute

returnsposting returns in the black each year, no matter what the overall

market does. During the bull market that started in late 2002, thats been

pretty simplewhen stocks around the world are surging, its relatively easy

to make money. But in the coming years, hedge funds will be sorely tested as

the markets settle down after a four-year run and absolute returns are more

In this chapter, we will explore what it means to be a hedge fund in these

changing times, as fund managers try not only to continue generating outsized

returns, but also go back to the core purpose of hedge fundsto hedge

insider firm profiles, message boards, the Vault Finance Job Board and more.

During the early years of the hedge fund industry (1950s1970s), the term

hedge fund was used to describe the hedging strategy used by managers

at the time. Hedging refers to the hedge fund manager making additional

trades in an attempt to counterbalance any risk involved with the existing

positions in the portfolio. Hedging can be accomplished in many different

ways but the most basic technique is to purchase a long position and a

secondary short position in a similar security (see the Gap stores example on

page 9). This is used to offset price fluctuations and is an effective way of

neutralizing the effects of market conditions.

and private placement and establishing a base in the southeastern region we

Career Guide to Middle Market Investment Banking (1)

Career Guide to Venture Capital%2C 4th Edition

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