Currency Based Hedge Funds
Currency based hedge funds.
Those Hedge Funds that survived the onslaught of the 70’s as also new entrants, experienced resurgence in the 80’s, associated with global financial liberalization that opened new investment opportunities. Macro funds gradually departed from the traditional Hedge Fund strategies that had focused on stock picking to take positions on the overall direction or broad global shifts in stock markets, currencies and interest rates. Managers built internationally diversified portfolios of government bonds, currencies and other assets. Hedge Funds were beginning to become quite fashionable from early 1986 with commendable press coverage on the Tiger Fund and Jaguar Fund. These funds gained remarkably in 1985 on a ‘global macro play’ involving large investments in currency call options purchased in the hope that the US Dollar having risen sharply for 4 years, would decline against the European currencies and the Yen.
However, declining stock prices and losses on currency positions hurt Hedge Funds badly, leaving the loosely regulated investment pools to start the year, said S&P (Standard & Poor) with minor losses. The S&P index Hedge Fund Index declined .47%, according to data released by the New York based investment rating, research and indices company.
Current currency market losses at managed future funds and global macro funds pulled the overall index further down, confirmed S&P. ‘Sharp reversals’ according to a senior Hedge Fund analyst caused in part by uncertainty leading up to the Iraq elections were particularly difficult for many macro funds, especially the new entrants, as these positions were quickly liquidated at stops placed outside the market.
Even though Hedge Funds lost money recently, the broader US equities benchmark index, the S&P-500, lost more slipping 2.53%. Foreign Hedge Funds that specialize in equity markets scored the biggest gains with the S&P equity long/short index – global ex-US inching up .74%.
Hedge Funds often promise to make money in all markets as they can use techniques like selling stocks short that are off limits at many traditional funds.
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