Sunday, November 30, 2008

An Address in Mayfair - Hedge Funds 101

Accessible article at LRB about Hedge Funds - how they work, what they are, how their role might change after the recent financial hoo-haa.

Paradoxically, though, the dramatic events of this autumn may lead, over the next few years, to an even greater role for the hedge funds that survive. With so many banks having been bailed out by the world’s taxpayers, they will be under considerable pressure from governments and regulators to concentrate on their core functions (receiving deposits, making loans to individuals and businesses, processing payments etc) and to reduce proprietary trading – that is the trading of financial instruments in order to make a profit for the bank, not to serve the needs of customers. Even banks that haven’t needed to be bailed out are moving in this direction: on 4 November, J.P. Morgan announced it was closing its global proprietary trading unit. As banks retreat from trading risky financial instruments, a potentially very profitable space will open up for those still prepared to do so, and hedge funds will step in to fill it.


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