For those of you who don’t know; a hedge fund is basically a pooled investment vehicle (like a mutual fund) where there are absolutely no constraints on what the investment portfolio manager can do with the money.

Sociologist, author, and financial journalist Alfred W. Jones is credited with the creation of the first hedge fund in 1949. Jones believed that price movements of an individual asset could be seen as having a component due to the overall market and a component due to the performance of the asset itself. To neutralize the effect of overall market movement, he balanced his portfolio by buying assets whose price he expected to be stronger than the market and selling short assets he expected to be weaker than the market.

Because the effect is to 'hedge' that part of the risk due to overall market movements, this type of portfolio became known as a hedge fund.

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