THE GROWTH OF HEDGE FUNDS

The Growth of Hedge Funds

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The Growth of Hedge Funds

Introduction

Originally the goal of "hedge funds" (the name dates back to 50 years of the twentieth century) as a form of capital was to shield against market risk capital market. Strategies for funding at that time were based on addressing both long positions and short, in order to exploit inefficiencies in the valuation of individual assets, while the portfolio of immunising themselves change or strengthening of market trend. Therefore, using such funds strategies may be referred to as the "Fund arbitration." Currently, the protective function of investments in hedge funds should be considered in terms of portfolio. Due to the negative correlation profitability of investment in hedge fund and traditionally constructed stock portfolio, involvement in hedge funds protect against excessive losses during the bear market stock market.

In 2009, hedge fund trading volume was made up of 64% derivatives and 35% cash bonds; this year, cash bonds made up 55% of hedge fund trading volumes." For nearly twenty years, issues related to the operation of hedge funds and their impacts on markets and more generally on the financial systems are gradually a field of study in its own right, rich body of literature (Richard, 2007,57-62). The implication of these funds in the current financial crisis, mainly by recycling derivatives credits, is actually only an extra line in a long list events involving explicitly implied that the responsibility for these funds. If they are valued for their supposed beneficial role on the efficiency and liquidity of financial markets, the near collapse of LTCM, a decade ago, revealed issues important systems related to the existence of these hedge funds. Indeed, their strategies opportunistic strong leverage is potentially a threat to stability financial, given the multiple relationships they have with banks (Richard, 2007,57-62). The weak regulations regarding borrowing funds allows them a almost unlimited use short selling as well as complex assets, such as futures and derivatives. The problem is therefore the central levers when addresses the issue of hedge funds because, although they still represent a low share of the amount of transactions on financial markets, debt, sometimes excessive, may pose a risk of bankruptcies are likely to cause real crises Financial. From this point of view, their destabilizing role has been highlighted following LTCM incident in the report entitled "Report of The President's Working Group on Financial Markets: Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management. (Weinberg,Condon,2004,6-8)

Hedge funds have certainly played a large role in the development of derivatives credits allowing better risk sharing. Asset securitization gives possibility for banks to leave a portion of the balance sheets of bad loans likely to increase the risk of their portfolio. This technique has the main advantage of containing growth equity provisions that they must achieve. These provisions regulated are intended to guarantee the solvency of banks in case of default payments from borrowers and prevent bank failures and systemic crises can result ...