Hedge Fund
It used to be common for students applying for business schools to express that after graduating, they would prefer employment with companies such as Goldman Sachs, Morgan Stanley, or General Motors. Today however, students who have completed degrees in Business, answer that they would pursue employment with companies like Omega Advisors or Soros Fund Management. Those corporations were viewed as small and insecure on Wall Street, but today they represent one of the fastest growing areas in the world financial markets. Hedge funds, as well as those that manage and invest in them have become the most talked about investment outside of Internet initial public offerings (IPO's). According to the Wall Street Journal because of their nature, hedge funds are supposed to do well regardless of the market condition. First, we will introduce the subject with a background that will provide an objective point of view of the industry to better understand the complex world of hedge funds that has dramatically changed since 1940's. Second, we will try to understand where the concept of hedge fund comes from, what a hedge fund is and how it works. Third, we will try to understand the phenomenon that permitted hedge funds trend to bubble and what are the consequences of this rapid rise and popularity. Lastly we will discuss the collapse of Long-Term Capital Management in the 1990's and how the impact of a failure of one or more hedge funds might affect the economy.
Hedge funds began gaining popularity after the astronomical returns that many corporations reported during the bubble of the investment world in recent years. The term hedge fund was defined by Alfred Winslow Jones, in 1949. He exemplified the term by his appro ...