Hedging

Hedging is becoming more of a familiar word not only to corporations, but to invidvidual investors. Shareholders have also started becoming quite aware of the act of hedging.

It seems that global market regulators are not big fans of hedge funds. They are feared says Business Today because they are compared with speculation and not the true means of hedge funds. There is concern that retail investors will lose a large amount of money so there is a trend that hopes to eliminate hedge funds [1]. There seems to be some confusion on what hedge funds actually prevent and address. They are not meant to be risky investments, but rather act as a diversifying agent to maintain or largely reduce risks [1]. The annual conference of the International Organization of Securities Commission (IOSCO) is addressing hedge funds to make others aware of their importance and to dispel any misconceptions about their function in the market place [1]. Much of the speculation has stemmed from some of the high-profile blow-outs, yet Business Today states that “study claims that the number of hedge fund failures is just 0.03 per cent of the $1 trillion investments managed by them globally”, and “Regulators in countries like Japan, France, Italy, Australia and Brazil appear to have taken note of these statistics, as they've gone ahead and registered hedge funds.[1]”

There is much speculation that the hedge fund industry has grown too large to any longer use the opportunities they had once utilized [2]. Wall Street Journal article points out that “Because of the hedge funds' complicated trading strategies, problems in convertible hedge funds are spreading to other hedge funds that trade corporate debt, as well as to the stock-oriented hedge funds that have been at the core of the hedge-fund boom. [2]” It seems that hedge funds are to blame for a trickling effect of trading issues. There seems to be a causal relationship with betting against certain companies, and a portion of their performance thereafter. This will be an interesting development over time as hedge funds grow in popularity and usage.

[1] Subramanian, Anusha. T.V. Mahalingam, Pallavi Srivastava, Venkatesha Babu, “Current News.” et al. Business Today. New Delhi: May 6, 2007. pg. 44-64;
http://ezproxy.bradley.edu:2183/pqdweb?did=1265196171&sid=1&Fmt=3&clientId=55491&RQT=309&VName=PQD

[2] Gregory Zuckerman and Henny Sender. “Hedge Funds Hit Rocky Stretch As Field Becomes More Crowded.” Wall Street Journal. (Eastern edition). New York, N.Y.: May 10, 2005. pg. A.1