Could you win in the hedge fund casino?

The hedge fund industry is larger than ever, and managers also seem more willing to embrace risk than ever before, as demonstrated by the recent Amaranth debacle. Could the system of generous incentives be to blame?

In 1948 Alfred Jones tried his hand at managing money. He raised $100,000, including $40,000 out of his own pocket, and set out to try to minimise his risk in holding long-term stock positions by short selling other stocks. Jones also employed leverage in an effort to enhance returns. Then in 1952 Jones altered the structure of his investment vehicle, converting it from a general partnership to a limited partnership and levied a 20% incentive fee as remuneration for the managing partner. He was the first fund manager to combine short selling, the use of leverage, shared risk through partnership and a remuneration structure based on performance. The hedge fund was born.

How big is the hedge fund industry?

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Brian has contributed to MoneyWeek with his expertise in investment strategy, for example how to quadruple your dividend income and how to navigate through the stock market in the 2008 financial crisis. He’s also touched on personal finance such as the housing market and the UK economy.