*Hisham Mahmud, from London.
Hedge funds have grown strongly since their emergence in the 1940s. They are now economic institutions that impact and heavily influenced by the global economy.
Apart from what risk hedging may suggest, hedge funds aim to maximize their potential investors, including of course high risk.
Hedge funds are investment funds that use sophisticated investment policies and techniques to achieve higher than average profit rates in the market. Since achieving high profit rates is the goal of managing the hedge fund, it does not have loyalty to any of the assets involved. Of course, this requires a high degree of diversity in the investment methods used by the fund manager. International surveys among major hedge fund investors are showing considerable optimism about their profits this year. This optimism is an extension of the success of hedge funds last year, which was the best performance since 2014. However, investment specialist Ian Nicole believes that "although last year was rated as the best hedge fund performance since 2014, it was not the best investment channel." He explains to the "Economists" that these funds "managed to achieve an average return of 6.5 percent. But it is still far from what was achieved in 2014 when the return was 10 percent. It is also poor compared to the Standard & Poor's 500 Index, which managed to achieve a yield of about 21.8% last year."
However, Mac Russell, a London Stock Exchange specialist, explains the optimism of hedge fund investors, said, "The optimism is that 2017 was the first year in four years that hedge funds achieved their targets. Some of these funds made a profit of 7.97 percent compared to 2.99 percent in 2016."
He added to the "Economists" that Deutsche Bank expects net financial flows of hedge funds to reach 41 billion dollars this year, compared to 10 billion dollars last year. This would bring up the total assets in hedge funds worldwide to US $ 3.42 trillion. Some analysts attribute the expected recovery in hedge fund performance this year to the US Treasury Department's tax reform plan approved by Congress. These reforms are expected to be in the interest of major investors and businessmen.
These reforms will make a dynamic contribution to the business world in the United States and encourage the investment climate. Indeed, hedge funds achieved good results last month, rising 2.8 percent, which was the best since 2006.
With analysts predicting further turmoil in stock market performance, hedge funds offer themselves a more attractive investment alternative.
Jacob Dean, London Stock Exchange specialist, explains to the "Economists," that "Despite the strong start of hedge funds this year and the shake-up in stock markets, the S&P 500 continues to achieve a total return of 5.7 percent. Therefore, hedge fund managers will not have to move between volatile markets, and to take advantage of US tax cuts, the US plan for infrastructure reform, the decline of traditional monetary policies, and the pursuit of the greatest possible benefit from price gaps in the international stock market."
Some have seen the decline in stock markets in recent weeks as a golden opportunity for hedge funds to boost their economic potential. But, many hedge fund managers have the conviction that the stock market crisis will be repeated.
L. R. Nigel, deputy managing director of hedge fund "Man Group," believes that "the turmoil in the stock market will lead to the shift of investors to hedge funds. Hedge funds can benefit strongly from the price declines of stocks. We have to imagine how much profit we could make as a result of the loss of the stock market around the world, which was about $ 4 trillion as a result of the decline in the value of stocks in recent weeks. The shock that has hit the markets is a major shock, but the big shock has not happened yet."
A survey showed that about half of hedge fund investors believe stocks have peaked at the end of last year, so they plan to return to hedge funds to manage future volatility.
According to the report issued by the company "Preqin," the largest share of investors plans to increase exposure to hedge funds over five years from the beginning of this year. About half of them are planning to keep those allocations for next year, "which will lessen the passion for equity markets." The report said that about 45 percent of investors believe that equity markets peaked at the end of 2017.
According to Amy Bensted, head of hedge fund products at Preqin, after a long period of decline in investor's confidence and the net cash outflows, "The hedge fund industry is now witnessing a revival among enterprises." She noted that this development in performance might be greater with the expectation of a corrective direction in the stock markets.
Last year, global equity markets made significant gains that never happened before. Since the end of January, it has lost its gains in a massive sell-off, which some have attributed to a corrective market movement.
Some specialists warn that the situation would be reversed if the "American Federal" raises the interest rates to the rates that alienate investors from investment.
Ian Nicole, Investment Specialist, said to the Economists that raising the interest rates would create a state of investment relaxation, as many investors would prefer to deposit their money in banks to avoid risk and this would hurt both the stock market and hedge funds. If the American Federal increases interest rates by 100 to 125 basis points, asset prices would fall and everyone would lose.
Some economists accuse hedge funds of playing a key role in widening the gap between the rich and the poor in the world. In fact, forty-five billionaires added billions to their wealth last year, boosting their position in the wealthy world by investing in hedge funds.
The billionaire George Soros is the most prominent of all. He is the most billionaires in the world that invests in hedge funds, with a net investment of about $ 25.2 billion. He recently hired "Fitz Patrick," one of Wall Street's top managers, to manage his private equity portfolio within his hedge fund, with a capital of about $ 30 billion.
James Simons is second in hedge fund investment. He is one of the geniuses of quantitative trading, and the mentor of Renaissance Technology. Although Simons retired from managing his hedge fund in 2010, he still plays a key role in managing the company and taking advantage of its outstanding performance, with a capital of $ 36 billion. His personal wealth reached $ 18 billion.
Billionaire Ray Dalio is the founder of the world's largest hedge fund, "Bridgewater Associates," which manages about $ 160 billion. His personal wealth is estimated at $ 16.8 billion.
Hedge funds are under heavy criticism from big investors, such as Bill Gross, Steven Cohen, and Warren Buffett, who say "they are very conservative investments."