What was the world's first hedge fund

globalization

At the end of 2009, about $ 1.7 trillion was invested in hedge funds. In relation to the approximately 400 billion US dollars that were still invested in 2000, that is more than four times that amount.

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Facts

Hedge funds are independent investment instruments with very different strategies. What they all have in common is the aspiration to generate profits when prices rise as well as fall. Hedge fund managers use a variety of techniques, such as the speculative short sale of securities or the systematic exploitation of sometimes minimal price differences between related securities (arbitrage transactions).

Hedge funds have become particularly widespread in recent years. However, the number of globally active hedge funds and the volume of assets under management can only be estimated. According to the organization TheCityUK, about $ 1.7 trillion was invested in hedge funds at the end of 2009. In relation to the approximately 400 billion US dollars that were still invested in 2000, that is more than four times that amount. At the end of 2007, however, assets under management were estimated to be $ 2.15 trillion. The financial crisis hit the hedge fund industry hard, which is why the number of funds fell by almost 9 percent for the first time in 2008. At 9,600 hedge funds, the number in 2008 was more than twice as high as in 1999, when around 4,000 funds were active.

A little more than half of all hedge funds are registered in an offshore financial center. This is primarily due to tax reasons, but is also due to the fact that the restrictions on the use of financial instruments are usually lower there. The most popular offshore location in 2008 was the Cayman Islands (67 percent of the funds), followed by the British Virgin Islands (13 percent) and Bermuda (7 percent). Important European locations are the Isle of Man, Gibraltar, Luxembourg, Liechtenstein and Monaco. Taken together, only around 10 percent of all hedge funds are based in Europe. In addition to the offshore locations and the tax-advantageous small states, the USA in particular is an important location for funds.

The hedge funds are not managed at the offshore locations themselves. Most hedge fund managers are based in the United States, especially New York. 69 percent of the world's assets under hedge funds were managed from the United States in 2008. From Europe and Asia, on the other hand, a significantly smaller share of assets is managed with 20 and 7 percent respectively. The outstanding position of the USA has, however, weakened: In 2002 the corresponding share was still almost 82 percent.

Many Hegde funds only accept investors with a certain minimum deposit amount. This means that only professional investors or very wealthy private investors can invest directly in hedge funds. In addition, hedge fund managers usually own part of their private assets in the hedge fund. It is estimated that around 30 percent of total capital was accounted for by individuals in 2008, with a far greater proportion therefore coming from various institutional investor groups.

Hedge funds have received frequent criticism in recent years. For example, you are responsible for a large part of the trading volume in credit derivatives and other highly speculative forms of investment that contributed to the outbreak and, above all, to the spread of the 2007/2008 financial crisis. Several hedge funds also used Greece's high national debt in 2010 to speculate against the euro.

Data Source

TheCityUK (ex-IFSL): Hedge Funds 2010, http://www.thecityuk.com/media/2358/Hedge_Funds_2010.pdf; Hennessee Group LLC: www.hennesseegroup.com

Terms, methodological notes or reading aids

Hedge funds are a special form of collective investment scheme. The naming is misleading, however, as the goal of hedging is rarely in the foreground today. Compared to other forms of investment, hedge funds are generally subject to lower regulatory requirements and therefore have a wide range of investment options. Many hedge funds take on significant additional leverage. Equity is leveraged both through borrowing and the use of derivatives. Leverage increases profits when investment strategies work and increases losses when they don't.

Short sales are speculative financial transactions in which a seller sells securities or goods without being in the seller's possession at the time of sale. In the case of a short sale, the seller tries to profit from an expected decline in the price of a security or a commodity. The seller conducts such a deal with the expectation that the prices on the settlement date will be lower because he can then obtain them at a cheaper price.

Offshore financial centers are financial centers where financial transactions are only slightly taxed and regulated. In addition, the administrative and legal provisions that apply to the financial sector often differ from the regulations for other economic sectors.

Table I: Hedge Funds

Number of hedge funds and assets under management in absolute terms, worldwide 1999 to 2009

 numberCapital,
in billions
U.S. dollar
19994.000324
20004.800408
20015.500564
20025.700600
20037.000850
20048.0501.050
20058.5001.350
20069.8001.750
200710.5002.150
20089.6001.500
20099.4001.700

Source: TheCityUK (ex-IFSL): Hedge Funds 2010, http://www.thecityuk.com/media/2358/Hedge_Funds_2010.pdf


Table II: Hedge Funds

Regional distribution of assets under management in percent, 2002 to 2008

 United StatesEuropeAsiaother
200281,612,34,91,2
200376,816,15,51,5
200472,120,65,51,8
200566,622,77,82,8
200666,024,07,03,0
200767,022,07,04,0
200868,023,06,03,0

Source: TheCityUK (ex-IFSL): Hedge Funds 2010, http://www.thecityuk.com/media/2358/Hedge_Funds_2010.pdf


Table III: Hedge Funds

By type of investor, share of fundraising in percent, worldwide 1999 to 2009

 peopleFund of fundsPension
fund
Under-
to take
Foundations
1999541810108
200148201598
200344241598
200544301277
20073131141212
20083032151112
20092629191214

Source: TheCityUK (ex-IFSL): Hedge Funds 2010, http://www.thecityuk.com/media/2358/Hedge_Funds_2010.pdf; Hennessee Group LLC: www.hennesseegroup.com