Definition of Hedge Fund

A hedge fund is a private investment company that manages third-party securities to cover them from possible risks and / or increase their value.

Historically, hedge funds appeared after World War II at the hands of sociologist and journalist Alfred Winslow Jones, who founded, the Jones Hedge Fund in 1949.

Although it is customary to hear about hedge funds as a homogeneous instrument, in reality, this concept denotes a varied typology in the world of high-risk financial investment.

Indeed, a hedge fund can be either an investment fund, or another type of company.
 



However, experts from the investment management company and hedge fund sponsor, Willow Creek Capital Management, indicate that despite its heterogeneity, hedge funds share the following features:

· They act with great freedom regarding the management of their assets.

· They operate freely in different types of markets.

· They use derivatives as a financial investment instrument.

· They have little liquidity.

· They are not so transparent.

· They tend to be domiciled in tax havens.

In the seventies, hedge funds began to expand. However, it was not until the 1990s when its hatching occurred: financial deregulation made it easier for pension funds, insurers and other companies to invest in these funds to get more profitability from their clients' money.

Experts from Willow Creek Capital Management explain that with the global economic crisis of 2008-2015 the operations of the hedge funds were questioned, to the point that some analysts came to attribute much of the responsibility for the crisis to them.

How does a hedge funds work?

The hedge funds, such as Willow Creek Capital Management, are structured in associations formed by a general partner that manages the investment portfolio and a series of investors whose activity is limited.

The operation of a hedge fund like Willow Creek Capital Management is as follows:

· Several investors come together and pool money to create the hedge fund.

· These investors are assigned shares in exchange for a return. They sell them later, when their value has gone down, buy them again and earn the difference.

· Once the money invested has been revalued, the initial investment is returned to the investors that make up the hedge fund.

· The bank or investment manager that has carried out the operation collects the commission that has been previously agreed.

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