What is a hedge fund? Impact on the global economy

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Hedge funds have been around for almost 70 years. They appeared on the domestic market much later, so few investors can confidently answer the question: "What is a hedge fund?". The features of their work and the possibility of making money with the help of these funds will be discussed in this article.

American hedge funds: history

It was the American who was the first creator of the hedge fund. This happened in 1949. However, there is evidence that even in the years of the Great Depression there were prerequisites for the creation of such schemes. However, the precarious position in the market prevented the development of such a direction.

Hedge funds are very important for the investment business. Their mass introduction occurred in the 80s of the XX century. Ordinary citizens also learned what a hedge fund is.

US policy on this issue is such that not everyone can afford the opportunity to invest. This can be done by investors managing assets of more than a hundred million dollars.

One of the popularity factors is that a competent development strategy allows you to be profitable not only when the marketrises, but also when it falls.

Soros, for example, popularized US hedge funds. After all, the activities of his company "Quantum" brought a huge profit of a billion dollars, collapsing the pound sterling.

Hedge funds were officially allowed in our country only in 2008. Almost 10 years have passed and now there are only 27 of them - this is a small number.

What is a hedge fund and how to invest in one?

A hedge fund is based on a few simple principles:

• function in any market;
• deal in all securities and derivatives.

This type of activity does not limit its work within any framework, its assets are formed from the entire range of exchange and finance instruments. Thanks to this availability, the investor is not dependent on the market. This is where the classic fund rule doesn't work: i.e., if the market falls, the stock may not depreciate.

In this sense, hedge funds have enough tools to make money on declining quotes. They backed most of their assets with derivatives.

Thus, hedging is a risk management system where by buying one instrument that negatively affects the market, you can influence another instrument for profit.

For example, if a dollar loan is taken, the strengthening of the ruble is extremely beneficial for the consumer if his income is in rubles. But if the dollar rises in price with the same initial data, the borrower will be at a loss. large corporations,unlike the average consumer, they cannot put up with such a situation, and hedging is used, for example, by buying currency manipulation futures at a similar price.

Hedging acts here as a safety net to minimize losses, but it cannot completely eliminate all risks.

How to make money?

The beauty of hedge funds is that they are profitable in any market situation. The notorious Soros Foundation earned about a billion dollars a year. During the nascent crisis, hedge funds skimmed off profits of up to 15% a year. Some received both 500% and 1000% for a ten-year period.

All these funds were guided by the principle of buying undervalued securities and selling overvalued ones.

Undervalued securities are characterized by record low prices, while it is believed that these assets have a certain potential. Thus, they are expected to acquire their growth positions. With overpriced - the opposite is true.

This strategy is primitive, because in reality there are a lot of such situations. It is characteristic that, for example, a large hedge fund Extranet Investment almost does not work with its funds. Often, such organizations use loans, borrow valuable assets from brokers.

Structure

What is a hedge fund in terms of its structure? To create such a fund, the management company attracts investors, brokers and banks. Employees of this company operate in the sale and purchase of securities.

The work of the fund starts from the momentinvestor interest. The fund manages their capital. The guarantor bank keeps investors' assets in various terms. As a rule, these are large banks with a good reputation.

A hedge fund administrator oversees the activities of the hedge fund, he is an auditor who evaluates assets, keeps accounts, and prepares reports for investors.

The primary broker performs technical operations. Most importantly, he must be able to carry out operations. Large banks often act as primary brokers.

Types of hedge funds by impact on the global economy

There are many classifications of hedge funds, for example, the IMF allocates:

• Global - conduct their activities in international markets, building strategies, studying quotes of individual organizations.
• Macro funds prefer to do business within one country. Based on macroeconomic situations, they build a strategy of behavior in the market.
• Relative value funds operate in the field of the national market. These are classic hedge funds based on asset price interconnection principles.

Russian law defines hedge funds as mutual funds. Investors must be highly qualified investors who own securities worth at least three million rubles. During the year, such investors must make at least a dozen transactions in the amount of 300,000 rubles.

How to become a member?

Participation in a domestic hedge fund is not easy. And investors have no confidence inRussian management.

For example, you can try the Extranet hedge fund, which represents a group of companies from the British Virgin Islands. This resource has extensive experience in the market. The stated goal of the company is to increase personal capital.

The hedge fund, whose personal account is available immediately after registration, has recently entered the CIS market. Prior to this, the professionalism of the organization was appreciated by American and European users.

Those who want to invest in a non-domestic hedge fund should open an account with a foreign bank. The investor must have an amount of at least a million dollars.

There are also alternative solutions. For example, with the help of domestic intermediaries, you can purchase a share in a foreign fund. However, this risky scheme is meaningless due to the low security of the shareholder and the difficulty of monitoring the organization.