Hedge Fund

Around 480 BC, Thales, a philosopher, made a profitable 'call option' trade by negotiating with olive press owners for exclusive rights to use their equipment in the upcoming harvest. He correctly predicted a bountiful harvest, sold his rights, and made a profit with minimal risk.

Louis Bachelier submitted his doctoral dissertation titled 'The Theory of Speculation' in 1900, which was the first to use calculus to analyze trading on the floor of an exchange. His research focused on a mathematical analysis of option trading on rentes, showcasing the possibility of making a profit at all prices through intricate trading positions.

In 1949, Alfred Winslow Jones established the first hedge fund, pioneering the concept of using various investment strategies to achieve high returns. This marked the beginning of the hedge fund industry as we know it today.

In 1952, Jones created the first hedge fund product by adding an incentive fee and converting his fund into a limited partnership. This innovative investment vehicle combined a hedged strategy with leverage and a 20% fee.

Warren Buffett took inspiration from Benjamin Graham's fund when he started his own fund in 1956, acknowledging Graham's influence on his investment strategies.

In 1966, an article in Fortune magazine highlighted Alfred Winslow Jones's hedge fund, which was outperforming other equity asset funds by 44%. This article generated significant interest in hedge funds.

In 1968, the Securities and Exchange Commission counted 140 investment partnerships as hedge funds. This marked a significant increase in the popularity and presence of hedge funds in the financial market.

By 1969, the first fund of funds, which consisted of diverse single-manager hedge funds, was established in the hedge fund industry.

During the 12-month period ending on May 31, 1970, Jones's hedge fund lost over 10% more than the S&P index, reflecting the challenges faced by the industry during the recession and stock market crashes.

Based on Louis Bachelier's dissertation, economists Fischer Black and Myron Scholes developed the Black-Scholes model for option pricing in 1973. This model established a mathematical equation for pricing options, leading to the expansion of financial derivatives trading and the introduction of the 'put' option.

In 1975, Ray Dalio founded Bridgewater Associates as a currency and bond advisory service catering to institutional investors, eventually expanding to become one of the largest hedge funds globally with the launch of Pure Alpha and All Weather strategies in the 1990s.

In 1980, Julian Robertson founded Tiger Fund, a hedge fund that gained significant attention. Starting with $8 million, the fund grew to over $22 billion at its peak, becoming the largest hedge fund of its time.

In 1986, Julian Robertson's Tiger Fund gained significant attention after experiencing remarkable growth from $8 million in 1980 to over $21 billion in the 90s. Robertson's success and influence led to the emergence of 'Tiger Cubs', hedge funds founded by his former employees.

During the 1990s, the hedge fund industry experienced significant growth, with assets increasing from $38.9 billion in 1990 to $536.9 billion in 2001. Various strategies like long-short, event-driven, and multi-strategy approaches became popular, along with a rising interest in emerging markets and funds of funds.

In 1992, George Soros's Quantum Investment Fund made a speculative bet of $1 billion on the devaluation of the British pound, causing Britain to exit the Exchange Rate Mechanism and spiking interest rates by 5 percent in a matter of hours.

The CSFB/Tremont Hedge Fund Index is a benchmark that tracks the performance of hedge funds. It has been used since 1994 to measure the returns of hedge funds.

In 1997, George Soros was blamed by the Prime Minister of Malaysia for causing the Asian Financial Crisis, with accusations of being a 'rogue speculator' and undoing years of economic development in just two weeks.

In 1998, Long Term Capital Management (LTCM), a hedge fund managing $120 billion on just $4.5 billion in capital, faced a crisis losing 90 percent of its equity in two days, leading to a coordinated rescue plan by the Federal Reserve Bank of New York and other financial institutions.

The equity bubble burst in 2000, leading hedge funds to adopt a mix of strategies like long-short, event-driven, and multi-strategy approaches.

By 2001, the hedge fund industry had grown to about $1.1 trillion, with approximately 9,000 hedge funds in operation.

In 2002, the Financial Stability Forum conducted an evaluation following the LTCM collapse, showing an increase in risk management discipline and a decrease in leverage within the hedge fund industry. This evaluation highlighted the importance of best practice guidelines and regulatory oversight in mitigating risks.

Interest in hedge funds in Asia, especially in Japan, Hong Kong, and Singapore, has significantly increased since 2003.

In December 2004, the SEC mandated hedge fund advisers managing over US$25 million and with more than 14 investors to register under the Investment Advisers Act, adopting a risk-based approach to monitoring hedge funds.

In 2005, at least two hedge fund managers earned more than $1 billion each due to the asymmetrical compensation structure used by hedge funds.

In June 2006, the U.S. Court of Appeals for the District of Columbia overturned the SEC rule requiring hedge fund advisers to register, sending it back for review after being challenged by a hedge fund manager.

In 2007, 14 leading hedge fund managers created the Hedge Fund Standards, a voluntary set of international standards aimed at promoting transparency, integrity, and good governance in the hedge fund industry.

The financial crisis of 2007–2008 caused many hedge funds to restrict investor withdrawals, leading to a decline in popularity and assets under management. However, AUM totals rebounded by April 2011.

During the 2009 recession, there were fewer hedge fund closures compared to 2016. The recession led to challenges in the hedge fund industry, impacting the number of closures.

In July 2010, the Dodd-Frank Wall Street Reform Act was enacted, requiring SEC registration for advisers managing private funds with over US$150 million in assets, impacting the regulation of hedge funds.

In June 2011, the hedge fund management firms with the greatest Assets Under Management (AUM) were Bridgewater Associates, Man Group, Paulson & Co., Brevan Howard, and Och-Ziff.

Bridgewater Associates had $70 billion in assets under management as of March 2012.

In April 2012, the hedge fund industry reached a record high of US$2.13 trillion total assets under management.

Paul Singer of Elliott Management Corporation, an activist hedge fund, had more than US$23 billion in assets under management in 2013.

In 2014, Daniel A. Strachman released the second edition of his book 'The Fundamentals of Hedge Fund Management', offering guidance on the successful establishment and operation of hedge funds.

As of June 2015, Michael Hintze of CQS had $14.4 billion of assets under management.

After the Brexit referendum, some hedge funds in London relocated to other European financial centers like Frankfurt, Luxembourg, Paris, and Dublin, while others moved their European head offices to New York City.

In March 2017, HFR reported a significant increase in hedge fund closures in 2016 compared to the 2009 recession. This was due to subpar performance leading to large public pension funds withdrawing investments.

In July 2017, hedge funds recorded their eighth consecutive monthly gain in returns with assets under management rising to a record $3.1 trillion.

By 2019, hedge fund industry assets grew to over $3 trillion, showcasing a significant rebound and growth in the sector.

As of December 2022, Kenneth Griffin of Citadel had over $62 billion in assets under management.