tig62
06-06-2008, 11:38 PM
I have been told by my son-in-law who is a financial analyist for Merrill Lynch that speculators are ONE of the main factors in the cause of rising oil prices. I just read an article("Speculation, but not Manipulation; http://www.businessweek.com/magazine/content/08_23/b4087026916906.htm?chan=search) in the latest edition of Business Week concerning the connection between oil and hedge funds that are used as a vehicle by the "qualified investors". So I decided to "google" for the explanation of "what is a hedge fund". Here's what I found:
Hedge fund
From Wikipedia, the free encyclopedia
A hedge fund is a private investment fund that charges a performance fee and management fee. Typically open only to qualified investors, hedge fund activity in the public securities markets has grown substantially, and accounts for approximately 10% of all U.S. fixed-income security transactions, 35% of U.S. activity in derivatives with investment-grade ratings, 55% of the trading volume for emerging-market bonds, as well as 30% of equity trades. Hedge Funds dominate certain specialty markets such as trading in derivatives with high-yield ratings, and distressed debt.[1]
Alfred Winslow Jones is credited with inventing hedge funds in 1949.[2]
In the United States, for an investment fund to be exempt from direct regulation, it must be open to accredited investors only, and only a limited number of investors can belong to it. While there is no legal definition of "hedge fund" under U.S. securities laws and regulations, typically they include any investment fund that, because of an exemption from the types of regulation that otherwise apply to mutual funds, brokerage firms or investment advisors, can invest in more complex and riskier investments than a public fund might. Hedge funds managed from other countries have similar relationships with their national regulators. As a hedge fund's investment activities are therefore limited only by the contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.
As their name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling. However, the term "hedge fund" has come in modern parlance to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase risk, and therefore return, rather than reduce it.
Hedge funds have acquired a reputation for secrecy. Being outside the regulatory regime that applies to retail funds greatly reduces the information a hedge fund is legally required to make public. Additionally, divulging trading methods and positions would compromise the business interests of many types of hedge fund, tending to limit the information they want to release.[3]
The assets under management of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Their sway over markets, whether they succeed or fail, is therefore potentially substantial and there is a continuing debate over whether they should be more thoroughly regulated.
http://en.wikipedia.org/wiki/Hedge_fund
After reading the article and tying it in with the present oil dilemma, I am now beginning to consider that there may be something discomforting here; not illegal, but a "make hay while the sun shines (with risks)" attitude that has little or no regards to what effect it's having on the economy as a whole. Normally I not of the philosophy of more government intervention, but if some very lightly regulated investing mechanism is a core player in helping to create adverse repercussions in the overall economy than maybe it's time to consider more oversight in the area of hedge funds as mentioned the article.
Hedge fund
From Wikipedia, the free encyclopedia
A hedge fund is a private investment fund that charges a performance fee and management fee. Typically open only to qualified investors, hedge fund activity in the public securities markets has grown substantially, and accounts for approximately 10% of all U.S. fixed-income security transactions, 35% of U.S. activity in derivatives with investment-grade ratings, 55% of the trading volume for emerging-market bonds, as well as 30% of equity trades. Hedge Funds dominate certain specialty markets such as trading in derivatives with high-yield ratings, and distressed debt.[1]
Alfred Winslow Jones is credited with inventing hedge funds in 1949.[2]
In the United States, for an investment fund to be exempt from direct regulation, it must be open to accredited investors only, and only a limited number of investors can belong to it. While there is no legal definition of "hedge fund" under U.S. securities laws and regulations, typically they include any investment fund that, because of an exemption from the types of regulation that otherwise apply to mutual funds, brokerage firms or investment advisors, can invest in more complex and riskier investments than a public fund might. Hedge funds managed from other countries have similar relationships with their national regulators. As a hedge fund's investment activities are therefore limited only by the contracts governing the particular fund, it can make greater use of complex investment strategies such as short selling, entering into futures, swaps and other derivative contracts and leverage.
As their name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling. However, the term "hedge fund" has come in modern parlance to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase risk, and therefore return, rather than reduce it.
Hedge funds have acquired a reputation for secrecy. Being outside the regulatory regime that applies to retail funds greatly reduces the information a hedge fund is legally required to make public. Additionally, divulging trading methods and positions would compromise the business interests of many types of hedge fund, tending to limit the information they want to release.[3]
The assets under management of a hedge fund can run into many billions of dollars, and this will usually be multiplied by leverage. Their sway over markets, whether they succeed or fail, is therefore potentially substantial and there is a continuing debate over whether they should be more thoroughly regulated.
http://en.wikipedia.org/wiki/Hedge_fund
After reading the article and tying it in with the present oil dilemma, I am now beginning to consider that there may be something discomforting here; not illegal, but a "make hay while the sun shines (with risks)" attitude that has little or no regards to what effect it's having on the economy as a whole. Normally I not of the philosophy of more government intervention, but if some very lightly regulated investing mechanism is a core player in helping to create adverse repercussions in the overall economy than maybe it's time to consider more oversight in the area of hedge funds as mentioned the article.