Over the years, the hedge fund industry has grown by leaps and bounds. While no one expected it, many individuals who staked their share in the industry are now billionaires. When looking to take advantage, you have to know what the industry is about and how to enter it.
A hedge fund generally refers to a pooled investment fund that trades in liquid assets and utilizes many components like continual trading, portfolio building and risk management. Keep reading when you are looking to learn more about the history and key players like Seth Klarman.
How It Began
The first hedge fund strategy was conceptualized in 1949 by Alfred Winslow James. He aimed to separate two risks that were involved when investing in stocks. To do this, he believed that it could be achieved by creating a market-neutral portfolio.
He began to pursue this concept by buying assets he thought would increase in value and selling short-term assets where he believed the value would decrease. The performance of his portfolio depended on the stocks he invested in and not due to market performance. He then converted this fund into a limited partnership in 1952 and created the first hedge fund product.
Founder of the former SAC Capital, Steve Cohen, was estimated to have a net worth of almost $12 billion at one point. He studied economics at Wharton School and opened a brokerage account while in school.
After graduating, Cohen began on Wall Street as a junior trader at Gruntal & Co. He ended up managing a $75 million portfolio when he decided to leave the firm. In 1992, he started SAC Capital with an investment of $20 million. The firm quickly became known for frequent and rapid trading, making it quite well-known.
Renowned for being a mathematician, James Simmons is another well-known hedge fund investor. He founded Renaissance Technologies, which focuses on quantitative investing with other funds. It is invite-only for new investors.
He has been described as one of the greatest investors on Wall Street, and he is currently the 66th-richest person in the world. His technique of employing mathematical models to analyze and execute trades for the best advantage is why his firm has consistently remained successful.
Seth Klarman believed in value investing and began a billionaire by using the concept. He is well-known for buying unpopular assets, especially when they are undervalued. Any price rise hence is profitable for him and his hedge fund. However, to be successful, one needs to be patient and disciplined.
He is currently the 15th highest-earning hedge fund manager compared to Warren Buffet for his investment methods. He started by founding The Baupost Group and made considerable money by buying assets during the financial crisis of 2007.
Where The Industry Is Headed
It is clear that the hedge fund industry is only set to grow in the future. When you’re looking to start this industry, hiring a fiducient advisor would be for the best. Find an expert who can provide you with all the knowledge and advice you require.
While returns are guaranteed, you will have to wait for a while to see the results. Patience and trust are required when you’re planning to enter the hedge fund industry.