Legendary Fortune Magazine editor, Winslow Jones, created the first hedge fund out of a shabby office on Broadway Avenue in New York City in 1948, and generated monster returns over the next 20 years. He got the idea of a 20% performance bonus, now an industry standard, from ancient Phoenician sea captains who kept a fifth of the profits from successful voyages. Jones must have had an historical bent.
Then came the second generation titans, George Soros, Julian Robertson, and Michael Steinhardt, who made their debut in the sixties. I count myself among the third generation along with Paul Tudor Jones and Louis Bacon, who launched funds in the late eighties, when there were still fewer than 200 funds and $25 million was still considered a lot of money. The really big money showed up in the nineties when the pension funds found them.
After that, we suffered through the many ordeals that followed, including the collapse of Long Term Capital in 1995, the Amaranth blow up in natural gas in 2006, the Lehman Brothers bankruptcy in 2008, and John Paulson’s 50% draw down in 2011. Today there are over 7,000 hedge funds, thought to manage some $2.2 trillion which dominate all financial markets.
Hedge Funds Do Have Their Advantages