What Hedge Funds Really Do: An Introduction to Portfolio Management by Philip J. Romero

What Hedge Funds Really Do: An Introduction to Portfolio Management by Philip J. Romero

PART I
The Basics

CHAPTER 1
Introduction
George Soros, a poor Hungarian immigrant with a philosopher’s bent and a
London School of Economics degree, founded Quantum Capital in the late
1960s and led it to breathtaking returns, famously “breaking the Bank of
England” in 1992 by shorting the pound sterling. Julian Robertson, the
hard-charging North Carolina charmer who made huge contrarian bets on
stocks, built the Tiger Fund in the 1970s and seeded dozens of Tiger Cubs
that collectively manage hundreds of billions of dollars. John Meriwether
left Salomon Brothers to collect a stable of PhDs in quantitative finance
from University of Chicago to form the envied, and later notorious, Long
Term Capital Management (LTCM). Each of these groups earned persistent
returns for their investors that exceeded 30 percent per year, handily
trouncing the market indexes. Each of their partners became billionaires,
likely faster than ever before in history.
Each of these financial legends, and hundreds of other lesser-known
investors, built a hedge fund. Private pools of funds have existed for as long
as liquid capital markets—at least 800 years—but the first hedge fund is
generally thought to be Albert Winslow Jones’ “hedged fund,” formed in
the late 1940s. Since then, the number of such funds has grown into the
thousands, and they manage trillions of dollars in clients’ funds.
Hedge funds are the least understood form of Wall Street institution—
partly by design. They are secretive, clannish, and less visible. Hedge funds
have received a generous share of envy when they are successful and
demonization when financial markets have melted down. But whether you
wish to join them or beat them, first you need to understand them, and how
they make their money

What Hedge Funds Really Do: An Introduction to Portfolio Management by Philip J. Romero