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    Join Date
    Aug 2011
    Lahore, Pakistan
    Blog Entries

    Why is a hedge fund called as Hedge Fund

    What are hedge funds? Answer to this question evokes many and varied responses. Most of the people associate hedge funds with a type of fund which is very less regulated and invests in unconventional financial assets which are often called as alternative assets. Going by the name, it is very obvious that hedge funds should be involved in hedging process which means risk mitigation is one of their key objectives. But there is a background to why hedge funds are called hedge funds and it is important to know this reason.

    The first hedge fund, A.W. Jones & Co., was created by Alfred Winslow Jones in the United States in 1949. He is also known as the father of hedge funds. Mr. Jones created a general partnership to avoid SEC regulations. He took financial positions in stocks which resulted in hedging as well as good returns in the stocks. Leverage used by A.W. Jones helped him to magnify the return. Mr. Jones bought some undervalued stocks and sold overvalued stocks. This was a hedging cum return magnification strategy of the fund. This strategy meant that going up of market would give them gain on long position while going down will give them returns on short position. The fund charged 20% returns to the investors.

    This strategy of A.W. Jones and Co. was given a name of “ Hedge Fund” by Carol Loomis in 1966 when he wrote an article on this fund.Today hedge funds are not the hedge funds that where started by A.W. Jones. In fact, hedge funds take aggressive bets on future position and not necessarily hedge.

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