Famous Hedge Funds

The most famous hedge funds are George Soros’s Quantum Fund and Julian Robertson’s Tiger Fund, both of which have created as much as 40% to a compound annual rate of return of 50%. High-risk investments may bring high returns to hedge funds but also unpredictable losses. Even the largest hedge funds cannot remain invincible forever in the vagaries of financial markets.

Quantum Fund

Double Eagle Fund, the predecessor of the Quantum Fund, was founded by George Soros in 1969 with a registered capital of US$4 million. In 1973, the fund was renamed the Soros Fund, and its capital jumped to $12 million. Soros Fund has five hedge funds with different styles, and Quantum Fund is the largest and one of the largest hedge funds in the world. In 1979, Soros changed the name of his company again and officially named it Quantum Corporation. The term "quantum" is derived from Heisenberg's uncertainty principle in quantum mechanics. This law is consistent with Soros's view of financial markets. The Uncertainty Law states that it is impossible to accurately describe the motion of atomic particles in quantum mechanics. Soros believes that the market is always in a state of uncertainty and constant fluctuations, but through obvious discounting and betting on unpredictable factors, it is possible to make money. The smooth operation of the company and the above-par price are based on the supply and demand of the stock.

Quantum Fund is headquartered in New York, but its investors are all non-U.S. foreign investors. Its purpose is to avoid the supervision of the U.S. Securities and Exchange Commission. Quantum Fund invests in commodities, foreign exchange, stocks and bonds, and uses a large number of financial derivatives and leveraged financing to engage in a full range of international financial operations. Relying on Soros's excellent analytical skills and courage, Quantum Fund has gradually grown in the world's financial markets. Because Soros accurately foresaw the extraordinary growth potential of a certain industry and company many times, he obtained excess returns during the rise of these stocks. Even in a bear market when the market was declining, Soros made a lot of money with his superb short-selling skills. By the end of 1997, the Quantum Fund had increased in value to a total asset value of nearly US$6 billion. The value of US$1 injected into the Quantum Fund in 1969 had increased to US$30,000 by the end of 1996, an increase of 30,000 times.

Tiger Fund

In 1980, the famous broker Julian Robertson raised US$8 million to found his own company, Tiger Fund Management. In 1993, Tiger Fund, a hedge fund under Tiger Management, successfully attacked the pound and the lira, and made huge profits in this action. Tiger Fund has since become famous and has been sought after by many investors. Tiger Fund’s capital has since It expanded rapidly and eventually became the most prominent hedge fund in the United States.

After the mid-1990s, Tiger Fund Management's performance has been rising steadily, and it has achieved considerable results in stock and foreign exchange market investments. The company's highest profit (minus management fees) has reached 32%. In the summer of 1998, its total assets reached a peak of US$23 billion, becoming the largest hedge fund in the United States for a time.

In the second half of 1998, Tiger Management made a series of investment mistakes and went downhill ever since. During 1998, after the Russian financial crisis, the exchange rate of the yen to the U.S. dollar once fell to 147:1. In anticipation that the ratio would fall below 150 yen, Julian Robertson ordered his Tiger Fund and Jaguar Fund to sell a large amount of He was short the Japanese yen, but the Japanese yen rose sharply to 115 yen within two months without any improvement in the Japanese economy. Robertson suffered heavy losses. In the largest single-day loss for which statistics are available (October 7, 1998), Tiger Management lost US$2 billion. In September and October 1998, Tiger Management lost nearly US$5 billion in Japanese yen speculation. .

In 1999, Robertson heavily invested in the stocks of American Airlines Group and Waste Management Company, but the stock prices of the two business giants continued to fall, so Tiger Fund was hit hard again.

Starting in December 1998, nearly US$2 billion of short-term funds were withdrawn from Jaguar Fund. By October 1999, a total of US$5 billion of funds had been withdrawn from Tiger Fund Management. As a result, investor withdrawals prevent fund managers from focusing on long-term investments, thus affecting the confidence of long-term investors. Therefore, on October 6, 1999, Robertson requested that starting from March 31, 2000, the redemption period of its three funds, "Tiger", "Puma" and "Puma", be changed to once every six months, but by 2000 On March 31, 2016, Robertson announced that he would end all operations of six of his hedge funds when Tiger Fund fell from a peak of US$23 billion to US$6.5 billion. After the collapse of Tiger Fund, US$6.5 billion in assets were liquidated, 80% of which was returned to investors. Julian Robertson personally left US$1.5 billion to continue investing.

Hedge fund investment cases

Among the many hedge fund investment cases that have been known to people, when the disturbance of financial market prices by hedge funds causes damage to the real economy and monetary system, these Only then will the price continue to fall in the direction expected by the hedge fund. At the same time, the more severely damaged the country being attacked, the better it is for the hedge funds that carried out the attack.

The result is a redistribution of wealth between hedge funds and nation-states. From the perspective of distribution fairness, this behavior of hedge funds is considered to be close to a monopoly, so the income it obtains is close to monopoly profits. It is recognized by the economics community that the market is effective as a mechanism for allocating resources. However, once hedge funds manipulate prices, not only will the chances of winning and losing be uneven, but it will also lead to damage to the market itself, including the monetary system, not to mention the improve market efficiency. From the perspective of economic values, since there is no efficiency, there is no moral basis. Because of the redistribution of wealth caused by this behavior, the winner's income not only comes at the same loss as the loser, but also at the expense of the loser's greater loss, and even the collapse and failure of its monetary system and economic mechanism; from a global perspective, It is a net welfare loss.

1. Attack on the pound in 1992:

Beginning in 1979, the European Economic Community, which had not yet unified its currency, unified the currency exchange rates of various countries and formed the European Currency Exchange Rate Guarantee System. . This system stipulates that the currencies of various countries are allowed to float up and down within a range of 25% that does not deviate from the "central exchange rate" of the European Union. If the currency exchange rate of a member country exceeds this range, the central banks of other countries will take action to intervene. However, the economic development of the member countries of the European Union is unbalanced, and fiscal policies cannot be unified at all. The currencies of various countries are affected by their own interest rates and inflation rates in different ways. Therefore, at some point, the continuous guarantee system forces the central banks of various countries to make decisions. Acting against their will, such as when foreign exchange trading is highly volatile, those central banks have to buy weaker currencies and sell stronger currencies to keep foreign exchange markets stable.

In 1989, after the reunification of East and West Germany, the German economy grew strongly and the German mark was strong. However, in 1992, the United Kingdom was in an economic recession and the pound was relatively weak. In order to support the pound, the Bank of England's interest rates continued to be high, but this would inevitably hurt the interests of the United Kingdom, so the United Kingdom hoped that Germany would lower the interest rate on the mark to relieve the pressure on the pound. However, due to the overheating of the German economy, Germany hoped to use high interest rates to cool the economy. As Germany refused to cooperate, Britain continued to fall in the currency market. Although Britain and Germany jointly sold the mark and bought pounds, it was still to no avail. In September 1992, the president of the German Central Bank published an article in the Wall Street Journal, in which he mentioned that the instability of the European monetary system could only be resolved through currency devaluation. Soros had a premonition that the Germans were preparing to retreat and the Mark no longer supported the pound, so his Quantum Fund borrowed a large amount of pounds in the form of a 5% margin to buy the mark. His strategy is: use pounds to buy marks before the pound exchange rate falls. When the pound exchange rate plummets, sell part of the marks to repay the original pound loan, and the rest is a net profit. In this operation, Soros's Quantum Fund short-sold the British pound equivalent to US$7 billion and bought the mark equivalent to US$6 billion, making a net profit of US$1.5 billion in just over a month, while European central banks The attack resulted in a total loss of US$6 billion, and the incident ended with the pound's exchange rate falling by 20% within one month.

2. Asian Financial Crisis

In July 1997, Quantum Fund short-sold the Thai baht, forcing Thailand to abandon its long-standing fixed exchange rate pegged to the U.S. dollar and implement free floating. It triggered an unprecedented crisis in Thailand's financial market. The crisis soon spread to all countries and regions in Southeast Asia that implemented free currency convertibility, and the Hong Kong dollar became the most expensive currency in Asia. Later, Quantum Fund and Tiger Fund tried to snipe the Hong Kong dollar, but the Hong Kong Monetary Authority had a large amount of foreign exchange reserves, and the authorities significantly raised interest rates, so the hedge funds' plan failed. However, the high interest rates caused the Hong Kong Hang Seng Index to plummet by 40%. , they realized that by shorting the Hong Kong dollar and Hong Kong stock futures at the same time, if the former caused interest rates to rise sharply and dragged down Hong Kong stocks, they would "certainly" make a profit.

However, the Hong Kong government intervened in the market in August 1998, causing hedge funds to lose money in both the foreign exchange market and the Hong Kong stock futures market