The worst thing about hedge funds,
is the name hedge funds.
The purpose of investing has always been the same – we invest to grow money, not to lose it. Taking this to heart, a few investment professionals believed that greater returns could be achieved beyond the traditional terrain by using greater degrees of freedom. As markets developed, this belief led to an expanded opportunity set from which returns could be sourced.
Investment strategies employing greater degrees of freedom were first seen in the same year the first Polaroid camera was sold, 1949. Employing a dynamic strategy with the ability to grow wealth when risk was rewarded and protect it when risk was penalised.
This unconstrained approach was however understood by few and used by even less. As the alternative investment terrain continued to expand and develop, certain market crashes were often attributed to such investment approaches. Bad news sells and what was unfamiliar was also seen as risqué. The apparent absence of a universally agreed and standard definition presented a superficial barrier to investing in these strategies and a skewed narrative developed, labelling the purest form of investing as the worst form of investing: a hedge fund.
Hedge Funds are the next iteration to the evolution of saving (or investments)
While definitions may vary, what has been consistent is that there have been periods where investors worried about losing money (typically very soon after a market crash) more than they were about making it. Today we find ourselves in a time where both requirements compete for the same attention. Many hedge funds respond well to the market challenge through, in their purest form, pursuing as much of the upside risk and as little of the downside risk. This may at times be explained technically as the pursuit of asymmetry in returns.
The regulator has stepped in
The present day Hedge Fund and Fund of Hedge Fund offer is now available to both retail and qualified investors in the form of collective investment schemes. The Financial Services Board has recently brought regulation and closer supervision to what was mostly a self-regulated environment, and the market has responded positively.
The next evolution of savings (investments) is upon us. The South African terrain boasts more than 100 available funds and over 50 skilled hedge fund investment managers. Blue Ink provides access to a regulated and carefully selected subset of these to individuals and institutions.