Pittsburgh Post-Gazette – More than 50 years ago, former diplomat and Fortune magazine staffer Alfred Jones decided to limit the risks of stock investing by short selling other stocks. In theory, Mr.Jones’ short sales — selling borrowed stocks at current prices on the prospect of them going down in the future — would limit his losses should the stocks he believed in falter.
Mr. Jones’ long/short strategy produced decent enough returns at lower than market risk to earn him the title of Father of Hedge Funds.
Mr. Jones’ baby has come a long way. Hedge funds currently manage $1.1 trillion, according to the Hedge Fund Association. Much of the growth was spawned in the wake of the market bubble that burst in 2000. The next three years produced losses for stock investors. Meanwhile, many hedge funds produced decent returns, something they are designed to do regardless of market conditions.
Because of their performance, hedge funds have replaced tech stocks as cocktail party chatter. Pension funds, endowments, wealthy individuals and others are flocking to them. Less affluent investors are getting into hedge funds through mutual funds that invest in them.
“A large part of the hedge fund [boom] is based on snob appeal,” said J. Andre Weisbrod, manager of the Staar Investment Trust, a Ross company that operates six funds whose portfolios are built around mutual funds instead of stocks.
Even Mr. Weisbrod markets one of his funds of funds, the $4 million Staar AltCat Fund, as “a hedge fund for the little guy” because its holdings can include funds that run counter to market trends.
