1949 – The first hedge is created

In 1949 A.W. Jones created the first hedge fund. It was based upon a principally new idea of arranging an investment portfolio. He combined long (for purchase) and short (for sale) positions of stocks in one portfolio. Having understood that catching the market trend is no-easy-task, the manager of the first hedge fund has been relying more on the financial analysis of companies. Application of this method helped to determine good and bad shares.

Apart from that, in order to increase profit of the portfolio A.W. Jones had used borrowed financing (leverage). At the initial stage of the fund management, A.W. Jones had used his own equity as well as attracted money from acquaintances. The public presentation of the hedge fund idea has been performed only in 1965. Financial results of the fund managed by A.W. Jones were beyond any expectations: he was able to overcome the most successful fund of these days -  Fidelity Trend mutual investments Fund - according to profitability.

1968 – More than 200 hedge funds are registered worldwide

Hedge funds became popular during the period of rise at American stock market in 1966-1968, when the fund managed by A.W. Jones gained wide popularity. Special digest prepared by the Securities and Exchange Commission of the USA (SEC) enlisted 215 investment partnerships, 140 of them described as hedge funds. Almost all of them specialized in investments in stocks.

While the market was rising, hedge funds managers were mostly relying on leverage (use of borrowed funds), since hedging of portfolios with short sales was complicated, time-consuming and required extra costs. Therefore most popular strategies were those which were implying hedging only theoretically. As a result, most funds were helpless when the market experienced substantial fall in 1968. Some sources mention decrease of the value of assets under management of 28 largest hedge funds by 70% in the late 1970. 

Hedge funds of George Soros and Julian Robertson

Hedge funds’ market relieved in 1980s, following the global financial liberalization which offered new opportunities for investments. Hedge funds got their second breath thanks to such prominent financiers as George Soros and Julian Robertson.

Julian Robertson has proved the resiliency of the idea offered by A.W. Jones again. In 1980-1986 Robertson’s fund Tiger has shown annual average return of 43% excluding fees. Julian Robertson has also determined his own formula of success: “Our mandate is to find the best 200 companies in the world and invest in them, find the worst 200 companies in the world and go short on them. If the best 200 don't do better than the worst 200, you should probably be in another business”.

George Soros further developed the initial idea of a the hedge fund. He created the basis of a new strategy “Global Macro”. 

Macrofunds have substantially deviated from the traditional strategies of hedge funds, which focused on selection of specific stocks. They started to open positions mostly relying on the general direction of the global trends in stock market developments, fluctuations of currency exchange rates and dynamics of the base rates. Managers started to create internationally diversified portfolios, comprised of government bonds, foreign currencies and other assets.

Subprime loan crises that begun in the USA in 2007 has led to a sharp fall of the world stock indices and has drawn the attention of investors to hedge funds again.

2008 – More than 8 000 hedge funds are registered worldwide. They are managing about 1.5 trillions US dollars, or 3% of global financial assets.