I have a secret to tell you. I know what Hedge Funds do!
Ok, well I don't KNOWknow, but I know. Know what I mean? Let's play a game. Sort of a word but really thought association. When I say Hedge Fund, what do you think of?
A rich guy in a suit, right? But why?
Who says that Hedge Funds are only for the extremely wealthy, greedy, mostly male (add to that white) Republican-loving, only familiar with diversity when it comes to investments, 1% of society?
I sure don't. So you don't meet the lofty requirements it takes to invest with a Hedge Fund? Perhaps your idea of a million dollar investment is your bi-annual lotto ticket purchase. While most of us are not part of the elite investment community, we are, in fact, potential benefactors of their wealth. WTF, you ask? Read on...
I understand the mixed perceptions of hedge funds and their managers. I also know that the secrecy of what hedge funds actually do is second only to the mystery behind the Masons. But what would be left for discussion and blogs if we knew EXACTLY what these entities stood for?
Back to hedge funds. The term "hedge" alone evokes a potential for shadiness; unfortunately, there are hedge fund managers that employ this use of the term:
hedge- to evade decision or action, esp by making noncommittal statements.
Although, the overwhelming greed of a few have tainted the true intent of funds that employ a friendlier definition of the term:
hedge- to mitigate a possible loss by counterbalancing.
Uri Landesman, President of Platinum Partners, a NY-based hedge fund founded by Mark Nordlicht explained to me that hedging one’s bets is a common practice in games of chance and essential for those managing other people’s money.
"You must always consider the downside and try to protect yourself against it. If properly implemented, hedging allows for the same level of return with lower amounts of risk."Couldn't most of us benefit from the concept of counterbalancing? But what does that entail? Maybe I will expand more on that in another blog! For now, I asked some hedge fund folks to tell me why WE THE PEOPLE should dig what they do, and I got some pretty interesting responses. I've included some of the ones that are in plain English and disregarded the ones in code.
If hedge funds make money, who stands to benefit? Hedge fund investors and hedge fund employees, right? Well, maybe some others with closer connections to the financial world will too. Due to what Phil Fogel, of Fogel Neale Partners refers to as "more efficient capital market flows" the capital gain hedge funds see could create greater opportunity in the rest of the financial domain as well as (in a trickle down sort of way) increased hiring.
Mark Nordlicht, founder of Platinum Partners, shared what I found to be a compelling reason for not hating these guys! Did you know that university endowments as well as state pensions will often invest a portion of their capital in hedge funds? He says that "over the years, Hedge Funds have become increasingly institutionalized and so has their investor base... making the ultimate beneficiaries of hedge fund performance a more diverse set of individuals than ever before."
The money tree may have been growing in my own collegiate backyard this whole time!