Brief History of Hedge Funds Although the name ‘hedge fund’ was used the first time only in 1960’s, the history of these vehicles spans to 1949. That year Alfred Jones, an American, set up the first fund, which had many of the characteristics as hedge funds have today. These include short selling of overvalued stocks, use of leverage for investments and a set performance fee. Strategy wise Jones’s fund represented the class which nowadays is called Long Short Equity.

Hedge funds as an asset class were slow to pick up and the results were modest. Only in the 1980’s, with the swift development in finance theory and financial markets, and advances in telecommunications technology, the hedge fund industry began its fast expansion both in terms of assets and the plethora of strategy classes. This period of rapid expansion is still on-going, thanks to its urge to innovate in the field of finance. As good examples of strategy classes that have slid from being hedge fund strategies to become part of the domain of traditional asset management are Emerging market and Value focused strategies.

Geographically, hedge funds were for a long time confined to US. The conquest of Europe started slowly in the 1980’s as the regulations governing mutual funds were modernized in various countries. Since then, London especially has risen to become a hedge fund hub to match New York City. Clusters of hedge funds have also mushroomed with increasing speed in e.g. Paris, Stockholm and many of the Swiss cities in the 1990’s and in the beginning of 2000’s. From the perspective of a European investor, this has meant a huge growth in investment options and birth of a class of experienced hedge fund portfolio managers.

Also the investor base has changed radically during the last two decades. At first, hedge funds were for a long time a vehicle for rich American individuals and families to let their wealth be managed. Beginning from the late 1980’s also institutions like pension funds and endowments have started to diversify a part of their portfolio into alternative investment class, most notably into hedge funds. The portion of investments in hedge funds is ever increasing with these institutional investors. European institutions have only lately recognized the benefits of investing into hedge funds, but they have been increasing their allocation very rapidly.

Printed from www.3cfund.com at 07.09.2010.