Hedge Funds and Their Role in 2008 Financial Crisis Essay

outwit monetary resource and Their Role in 2008 Financial Crisis - Essay ExampleThey are not regulated in the comparable sense as plebeian ancestrys. Mostly, high net worth individuals and some pension funds induct in flurry funds. It is not mandatory for them to be registered with the Securities and Exchange Commission because they are not divinatory to provide information regarding their operation and valuation in public. The paper tries to explore the early history of surround funds and how prima facie they are different from mutual funds. The paper also focuses on their role and the restore they created during 2008 fiscal crisis and also what regulatory measures are currently in force to regulate them. Genesis of overreach Funds Mallaby emphasizes that Alfred Winslow Jones was the first global evade-fund manager starting his operations in 1949 without any formal capacity and perhaps he set the tone and style of the functioning of hedge funds that are in vogue today. His way of charging the performance fee was different wherein a straight 20 percent golf stroke was made on net gains while distributing the profits. This deduction was over and above the management fee and make up today most hedge-funds continue to have their performance fee policy in the same line. The fund was called so because all along investments were hedged simultaneously short-selling some of the weaker stocks to mitigate the systemic risks. He use leveraging as a tool to hedge investments. It is worth noting that Joness firm made an dumfounding return of around 5000% during the year 1949 through 1968. Investopedia states that in 1968, around 140 hedge funds were in operations in the US though most of them were out of business due to slump in subsequent years. The hedge funds saw renaissance in the early 1990s but again, many of them including high-profile hedge funds such as Robertsons were in trouble during dotcom crisis of 2000. Hedge Fund Is Not a Mutual Fund Hedge f unds are not mutual funds and they differ in several ways. Mutual funds have a large number of retail investors while hedge fund is not interested in a retail exposure and limit itself to a fewer high-net worth investors. After a minimum lock-in period, investors are free to pull out the funds in mutual funds but hedge funds usually have a longer lock-out period during which investors cannot withdraw their investments. A mutual fund needs to register with Security Exchange Commission while hedge fund does not have such compulsion. Mutual funds do not undertake hazardous activities and focus on returns relative to the bench-mark index. For example, if the bench-mark index goes down by 7 percent but the mutual fund investment goes down by only 4 percent then that will entail that mutual fund has performed better. In contrast, hedge funds focus on absolute returns regardless of the crusade of market index. That is why hedge funds employ numerous strategies to earn high returns suc h as long or short positions on derivative instruments, options and futures. Mutual funds do not reanimate to such strategies to enhance their returns as they are governed by a host of regulatory measures (Investopedia). Role of Hedge Funds in 2008 Financial Crisis Chung argues that hedge funds were not behind the financial crisis of 2008 however, there is no guarantee that they will not cause one in future. Regulatory authorities, fund managers and lawyers believe that banks and financial institutions were largely responsible for the recent financial crisis because they invested heavily in subprime mortgages. The study also revealed that short-selling done by hedge funds did not aggravate the crisis. Hedge funds are not required to be brought under the scanner of policy makers nevertheless, it is suggested that regulators need to keep a watchful eye on their activities. Accordingly, at one time hedge-funds firms are needed to register