Hedging risk has been an integral part of the financial
markets for many years. In the 1800s, commodity producers and merchants
began using forward contracts for protection against unfavorable price
changes. This system is still very active today.
The term "hedge fund" dates back to only 1949. In 1949,
almost all investment strategies took only long positions. A reporter
for Fortune magazine, named Alfred Winslow Jones, published an article
pointing out that investors could achieve higher returns if hedging were
implemented into an investment strategy. This was the beginning
of the Jones model of investing.
To prove his hypothesis, Jones launched an investment partnership incorporating
two investment tools into his strategy: short selling and leverage.
The purpose of these two strategies was to limit risk and enhance returns
In addition, Jones established two important characteristics that are
still part of the industry today. He used an incentive fee of 20%
of profits and he kept most of his own personal money in the fund.
This ensured that his personal goals and the goals of his investors were
Exceptional results were obtained through this hedged approach.
During the period from 1962 to 1966, Jones outperformed the top mutual
fund by more than 85%, net of fees. The success of Jones stimulated
the interest of high net worth individuals in hedge funds.
Not only did Jones attract the interest of high net worth individuals
to hedge funds, but also many top money managers were drawn to hedge fund
because of the unique fee structure. A 20% incentive fee made it
possible for managers to earn 10 to 20 times as much in compensation when
compared to long-only money management services.
Between 1966 and 1968, nearly 140 new hedge funds were launched as a consequence
of the new dynamics of investing and managing money. Many of these
funds, however, did not follow the Jones model of hedging risk.
Instead of hedging, only leverage was used to enhance returns, ignoring
the short-selling aspect that Jones employed. Using a leveraged,
long-only strategy made these funds highly susceptible to the market downturn
that began in late 1968. Some hedge funds dropped in value by more
than 70% within two years.
Large hedge fund losses due to the 1973-1974 bear market caused many investors
to turn away from hedge funds. For the next ten years, few managers
could attract the necessary capital to launch new partnerships.
By 1984, there were only 68 funds in existence.
In the late 1980s, a small group of extremely talented hedge fund managers,
including George Soros, Michael Steinhart, and Julian Robertson, gave
hedge funds a restored credibility. Despite difficult market conditions,
these managers produced annual returns of greater than 50%.
Many of the worldĦs best money managers left the traditional institutional
and retail investment firms because of potentially higher fees and great
flexibility with managing hedge fund products. By 1990, there were
over 500 hedge funds worldwide with assets of about $38 billion.
Hedge funds now represent one of the largest segments of the investment
management industry. Currently, it is estimated that there are over
6,000 hedge funds in existence with total money under management in excess
of $1 trillion.
Barclay Trading Group, Ltd.
Hedge Fund Research, Inc.
Management Partners, Inc.
1100 North Fourth Street
Fairfield, Iowa 52556
Phone: 800-621-2520 / 641-472-8800
Contact CMP via email
WHEN CONSIDERING ALTERNATIVE INVESTMENTS YOU SHOULD CONSIDER VARIOUS
RISKS INCLUDING THE FACT THAT SOME PRODUCTS USE LEVERAGE AND OTHER
SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF
INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE
PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE
COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX
INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS
AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE
UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY
TO THE INVESTMENT MANAGER.
WITH RESPECT TO ALTERNATIVE INVESTMENTS IN GENERAL, YOU SHOULD
BE AWARE THAT:
RETURNS FROM SOME ALTERNATIVE
INVESTMENTS CAN BE VOLATILE.
YOU MAY LOSE ALL OR PORTION
OF YOUR INVESTMENT.
WITH RESPECT TO SINGLE MANAGER
PRODUCTS THE MANAGER HAS TOTAL TRADING AUTHORITY. THE USE OF
A SINGLE MANAGER COULD MEAN A LACK OF DIVERSIFICATION AND HIGHER
MANY ALTERNATIVE INVESTMENTS
ARE SUBJECT TO SUBSTANTIAL EXPENSES THAT MUST BE OFFSET BY TRADING
PROFITS AND OTHER INCOME. A PORTION OF THOSE FEES IS PAID TO
CAPITAL MANAGEMENT PARTNERS, INC.
TRADING MAY TAKE PLACE ON
FOREIGN EXCHANGES THAT MAY NOT OFFER THE SAME REGULATORY PROTECTION
AS US EXCHANGES.
WITH RESPECT TO AN INVESTMENT IN
A FUND, YOU SHOULD BE AWARE THAT:
THERE IS OFTEN A LACK OF TRANSPARENCY
AS TO THE FUND'S UNDERLYING INVESTMENTS. AS TO FUND OF FUNDS,
THE FUND'S MANAGER HAS COMPLETE DISCRETION TO INVEST IN VARIOUS
SUB-FUNDS WITHOUT DISCLOSURE THEREOF TO YOU OR TO US.
BECAUSE OF THIS LACK OF TRANSPARENCY, THERE IS NO WAY FOR YOU
TO MONITOR THE SPECIFIC INVESTMENTS MADE BY THE FUND OR TO KNOW
WHETHER THE SUB-FUND INVESTMENTS ARE CONSISTENT WITH THE FUND'S
HISTORIC INVESTMENT PHILOSOPHY OR RISK LEVELS.
A FUND OF FUNDS INVESTS IN
OTHER FUNDS AND FEES ARE CHARGED AT BOTH THE FUND AND SUB-FUND
LEVEL. THUS THE OVERALL FEES YOU WILL PAY WILL BE HIGHER
THAT YOU WOULD PAY BY INVESTING DIRECTLY IN THE SUB-FUNDS.
IN ADDITION, EACH SUB-FUND CHARGES AN INCENTIVE FEE ON NEW PROFITS
REGARDLESS OF WHETHER THE OVERALL OPERATIONS OF THE FUND ARE
THERE IS NO SECONDARY MARKET
FOR FUND INTERESTS. TRANSFERS OF INTERESTS ARE SUBJECT
TO LIMITATIONS. THE FUND'S MANAGER MAY DENY A REQUEST
TO TRANSFER IF IT DETERMINES THAT THE TRANSFER MAY RESULT IN
ADVERSE LEGAL OR TAX CONSEQUENCES FOR THE FUND.
A FUND'S OFFERING MATERIALS OR
A MANAGER'S DISCLOSURE DOCUMENT DESCRIBES THE VARIOUS RISKS AND
CONFLICTS OF INTEREST RELATING TO AN INVESTMENT AND TO ITS OPERATIONS.
YOU SHOULD READ THOSE DOCUMENTS CAREFULLY TO DETERMINE WHETHER AN
INVESTMENT IS SUITABLE FOR YOU IN LIGHT OF, AMONG OTHER THINGS,
YOUR FINANCIAL SITUATION, NEED FOR LIQUIDITY, TAX SITUATION, AND
KEEP IN MIND THAT THE PAST PERFORMANCE OF ANY INVESTMENT IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. YOU SHOULD ONLY
COMMIT RISK CAPITAL TO A FUND INVESTMENT. ALTERNATIVE INVESTMENT
PRODUCTS, INCLUDING HEDGE FUNDS, ARE NOT FOR EVERYONE AND ENTAIL
RISKS THAT ARE DIFFERENT FROM MORE TRADITIONAL INVESTMENTS.
YOU SHOULD OBTAIN INVESTMENT AND TAX ADVICE FROM YOUR ADVISERS BEFORE
DECIDING TO INVEST.
CAPITAL MANAGEMENT PARTNERS, INC. (CMP) HAS ENTERED INTO SELLING
AGREEMENTS WITH SOME OF THE FUNDS DESCRIBED ON THIS WEBSITE, PURSUANT
TO WHICH IT IS PAID FEES BY THE FUND OR ITS MANAGER IN CONNECTION
WITH FUND SALES MADE BY CMP. IN ADDITION, CMP MAY ACT AS AN INTRODUCING
BROKER FOR INDIVIDUALLY MANAGED FUTURES ACCOUNTS AND TO SOME OF
THE FUNDS AND AS SUCH, MAY RECEIVE A PORTION OF THE COMMODITY BROKERAGE
COMMISSIONS THEY PAY IN CONNECTION WITH THEIR FUTURES TRADING OR
RECEIVE A PORTION OF THE INTEREST INCOME (IF ANY) EARNED ON AN ACCOUNT'S
ASSETS. CERTAIN CTAS MAY ALSO PAY CMP A PORTION OF THE FEES
THEY RECEIVE FROM ACCOUNTS INTRODUCED TO THEM BY CMP. BEFORE
SEEKING ANY ADVISOR'S SERVICES OR MAKING AN INVESTMENT IN A FUND,
INVESTORS MUST READ AND EXAMINE THOROUGHLY THE RESPECTIVE DISCLOSURE
DOCUMENT OR OFFERING MEMORANDUM.
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