Also called municipal bond relative value arbitrage, municipal arbitrage, or just muni arb, this hedge fund strategy involves one of two approaches.

A good illustration of the risk of DLC arbitrage is the position in Royal Dutch Shell — which had a DLC structure until 2005 — by the hedge fund Long-Term Capital Management ( LTCM, see also the discussion below ).

In the autumn of 1998 large defaults on Russian debt created significant losses for the hedge fund and LTCM had to unwind several positions.

Tessa Jowell, Labour cabinet minister, embroiled in a scandal about a property remortgage allegedly arranged to enable her husband to realise £ 350, 000 from an off-shore hedge fund, money he allegedly received as a gift following testimony he had provided for Silvio Berlusconi in the 1990s.

A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is generally only open to certain types of investors specified by regulators.

The value of an investment in a hedge fund is calculated as a share of the fund's net asset value, meaning that increases and decreases in the value of the fund's investment assets ( and fund expenses ) are directly reflected in the amount an investor can later withdraw.

Most hedge fund investment strategies aim to achieve a positive return on investment whether markets are rising or falling.

A hedge fund typically pays its investment manager a management fee, which is a percentage of the assets of the fund, and a performance fee if the fund's net asset value increases during the year.

As of April 2012, the estimated size of the global hedge fund industry was US $ 2. 13 trillion.

Because hedge funds are not sold to the public or retail investors, the funds and their managers have historically not been subject to the same restrictions that govern other funds and investment fund managers with regard to how the fund may be structured and how strategies and techniques are employed.

The origin of the first hedge fund is uncertain.

Warren Buffett, in a 2006 letter to the magazine publication of the Museum of American Finance asserted that the Graham-Newman partnership of the 1920s was the first hedge fund he was aware of, but suggested others may have preceded it.

Sociologist, author, and financial journalist Alfred W. Jones is credited with coining the phrase " hedged fund ", in contrast to prior nomenclatures, and is often erroneously credited with creating the first hedge fund structure in 1949.

This type of portfolio became known as a hedge fund.

In 1968 there were almost 200 hedge funds, and the first fund of funds that utilized hedge funds was created in 1969 in Geneva.

In the 1970s hedge funds typically specialized in a single strategy, and most fund managers followed the long / short equity model.

A key factor of their growth over this and the next decade was increased allocations by US institutional investors, notably pension and endowment funds, following the success of David Swensen's investments in alternative investments and other non-marketable assets, such as hedge funds, timber, real estate and private equity, at Yale University's endowment fund.

At the end of that year, the 241 largest hedge fund firms in the United States held $ 1. 335 trillion.

The steeper slope of the municipal yield curve allows participants to collect more after-tax income from the municipal bond portfolio than is spent on the interest rate swap ; the carry is greater than the hedge expense.

However there is a chance that the original stock will fall in value too, so by shorting it one can hedge that risk.

Connecticut's other traditional industry is financial services ; for example, insurance companies in Hartford and hedge funds in Fairfield County.

The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds.

Modern etymology reconstructs Proto-Germanic * hagatusjon-from haegtesse and hagazussa ; the first element is probably cognate with hedge, which derives from PIE * kagh-" hedge, enclosure ", and the second perhaps from * dhewes-" fly about, be smoke, vanish.

It is possible for hedge funds to commit to a certain strategy or employ multiple strategies to allow flexibility, for risk management purposes, or to achieve diversified returns.

* Multi-manager: a hedge fund wherein the investment is spread along separate sub-managers investing in their own strategy.

Considerations will include the organization and management of operations at the hedge fund manager, whether the investment strategy is likely to be sustainable, and the fund's ability to develop as a company.

Since hedge funds are private entities and have few public disclosure requirements, this is sometimes perceived as a lack of transparency.

Another common perception of hedge funds is that their managers are not subject to as much regulatory oversight and / or registration requirements as other financial investment managers, and more prone to manager-specific idiosyncratic risks such as style drifts, faulty operations, or fraud.

In comparison with investment banks, hedge fund leverage is relatively low ; according to a National Bureau of Economic Research working paper, the average leverage for investment banks is 14. 2, compared to between 1. 5 and 2. 5 for hedge funds.

Several studies have suggested that hedge funds are sufficiently diversifying to merit inclusion in investor portfolios, but this is disputed for example by Mark Kritzman who performed a mean-variance optimization calculation on an opportunity set that consisted of a stock index fund, a bond index fund, and ten hypothetical hedge funds.

In other words, even though low average correlations may appear to make hedge funds attractive this may not work in turbulent period, for example around the collapse of Lehman Brothers in September 2008.

For example, a hedge fund can degenerate into a Ponzi scheme if it unexpectedly loses money ( or simply fails to legitimately earn the returns promised and / or thought to be expected ) and the promoters, instead of admitting their failure to meet expectations, fabricate false returns and, if necessary, produce fraudulent audit reports.

Another example is two-stroke oil for lubrication of two-stroke or two-cycle internal combustion engines found in snow blowers, chain saws, model airplanes, gasoline powered gardening equipment like hedge trimmers, leaf blowers and soil cultivators.

This can lead to swaps where principal is paid on one or more legs, rather than just interest ( for example to hedge a coupon strip ), or where the balance of the swap is automatically adjusted to match that of a prepaying bond ( such as RMBS Residential mortgage-backed security )

For example, a hedge fund believes that Risky Corp will soon default on its debt.

A bank, for example, may hedge its risk that a borrower may default on a loan by entering into a CDS contract as the buyer of protection.

For example, a hedge fund has bought $ 5 million worth of protection from a bank on the senior debt of a company.

For example, a hedge fund has bought $ 5 million worth of protection from a bank on the senior debt of a company.

Hedging can be used in many different ways including foreign exchange trading The stock example above is a " classic " sort of hedge, known in the industry as a pairs trade due to the trading on a pair of related securities.

Similarly, an oil producer may expect to receive its revenues in U. S. dollars, but faces costs in a different currency ; it would be applying a natural hedge if it agreed to, for example, pay bonuses to employees in U. S. dollars.

The nineteenth century Great Hedge of India was probably the largest example of a hedge used as a barrier.

It may also use the hedge position stock ( 1, 000 Vodafone in this example ) as part of a funding transaction such as stock lending, repo or as collateral for a loan.

Some of these alternative currencies are designed to prevent usury, others are designed simply as alternatives to state-issued fiat money, as a hedge against inflation — for example, the Liberty Dollar.

In terms of hedge fund strategies, risk arbitrage shares some properties with other forms of arbitrage such as relative value, volatility arbitrage, convertible arbitrage, and statistical arbitrage, but it is also an example of an event driven strategy.

A hedge fund might sell short one automobile industry stock, while buying another — for example, short $ 1 million of DaimlerChrysler, long $ 1 million of Ford.

Among the topics of discussion were Cramer's past at his hedge fund ; for example, his violent temper, and what finally led him to come to his senses and " calm down.

For example, a prime broker may also be in the business of leasing office space to hedge funds, as well as including on-site services as part of the arrangement.

Snedding is the process of stripping the side shoots and buds from the length of a branch or shoot, usually of a tree or woody shrub, for example as part of the process of hedge laying.

In December 2006, Mad Money host Jim Cramer used Pisani as an example of an easily manipulated reporter used by hedge fund managers to spread false statements about a company in order to illegally drive the stock price down.

There are different types of ' fund of funds ', each investing in a different type of collective investment scheme ( typically one type per FoF ), for example ' mutual fund ' FoF, hedge fund FoF, private equity FoF or investment trust FoF.