Friday, July 12, 2013

A Note + Question on Hedge Funds

Wikipedia's entry on hedge funds is pretty good. I applaud the Wiki's editor in pointing out the old definition of a hedge fund and what they are like now. They generally don't hedge. Hedge funds are just investment pools or active mutual funds for the extremely wealthy and institutional investors that have few rules and restrictions. There is a feature few is any people really discuss, and that is size. Not size of assets under management, but the fact that hedge funds are limited by laws to be either under 100 investors in size or under 500 investors in size is. Those investors are all accredited investors or institutions, so sorry, you're not invited. Hedge funds also dabble in exotic investment vehicles (derivatives). Compared to the breadth of investors, they are concentrated actors in the giant world of financial market, yet their footprint due to assets under management is large. It is a massive concentration of risk in what is increasingly a fragile financial system, which is the infrastructure of the global trade dollar reserve currency system. In the realm of national security, hedge funds would be like small terror organizations with their hands on biological, chemical and even nuclear weapons. Why are they allowed to operate?

Maybe this explains it.

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