Talk:Hedge fund/Archive 5

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Toward resolving tag on intro section

For some time now there's been a tag atop the article questioning the lead section. I actually don't think it is too bad, although I have some thoughts on the first paragraph. Here they are:

• The first sentence definition uses a 1982 edition of the American Heritage Dictionary as a source, which would not reflect recent changes in the hedge fund industry. I'd like to offer another definition.
• The term "collective investment scheme" is also somewhat misleading. While the definition of collective investment scheme does seem to cover hedge funds, the term is really a legal concept deriving from a set of European Union Directives to regulate and define mutual funds—as the Law section of the CIS article makes clear.

I have been working on some alternative language (supported by reliable sources) and I can share that soon. Meantime, for editors who have this page watchlisted, I'd be interested in hearing if you have any other thoughts on what might be wrong with this lede. Cheers, WWB Too (Talk · COI) 19:56, 18 September 2013 (UTC)

I have reviewed the lede section and am reasonably happy with it (except that citation 2 seems wrong at the first of the two places where it is referred to). Feel free to suggest a better version. Wildfowl (talk) 09:40, 23 September 2013 (UTC)

Well, I didn't put up the tag, but I do notice the following issues with the intro:

• The definition is problematic and does not distinguish hedge funds from private equity funds. This is the biggest issue.
• The usage "collective investment scheme" is problematic, although the problem really is the name of the collective investment scheme article, which should be renamed to something like "investment fund" (or "fund (investment)"?).
• Support is needed for the statement that most hedge funds use absolute return strategies. Even if technically true (i.e., "most" means a majority), it may be misleading, since so many hedge funds do not use absolute return strategies, and I'm not sure it belongs in the intro.
• I would say that hedge fund managers "often," rather than "typically," invest their own money.
• Rather than saying that some hedge funds have assets of several billion dollars, I would give a better idea of the range (which can go from six figures to twelve figures), if indeed this should be addressed at all in the intro.
• It needs to be reorganized slightly, since regulatory issues are discussed in both the first and the fourth paragraphs.

So, not all that bad, really, other than the definition, which WWB Too apparently is working on. John M Baker (talk) 15:23, 23 September 2013 (UTC)

Thanks to both of you for the considered replies. My proposed alternative for the first paragraph of the Introduction section is here:

Proposed Introduction replacement

A hedge fund is a pooled investment vehicle administered by a professional management firm, and often structured as a limited partnership or limited liability company. Hedge funds invest in a diverse range of markets, and use a wide variety of investment styles and financial instruments. Though they are privately owned and operated, hedge funds are subject to the regulatory restrictions of their respective countries. U.S. regulations, for example, limit hedge fund participation to certain classes of investors (see accredited investors, qualified purchasers) and also limit the total number of investors allowed in the fund.

References

For convenience, I've included markup for the above in the hidden box below:

Proposed Introduction markup

A '''hedge fund''' is a pooled investment vehicle administered by a professional management firm, and often structured as a [[limited partnership]] or [[limited liability company]].<ref name=McCrary>{{cite book |url=http://books.google.com/books?id=9zqVDo9_hQQC&pg=PA7&dq=pooled+investment+hedge+fund&hl=en&sa=X&ei=ETU3UtelDuaQigLGuYFA&ved=0CFQQ6AEwAg#v=onepage&q=pooled%20investment%20hedge%20fund&f=false |author=Stuart A. McCrary |title=How to Create and Manage a Hedge Fund: A Professional's Guide |publisher=John Wiley & Sons |date=2002 |chapter=Chapter 1: Introduction to Hedge Funds |pages=7-8 |isbn=047122488X}}</ref><ref name=PWGOFM>{{cite web |url=http://www.treasury.gov/resource-center/fin-mkts/Documents/hedgfund.pdf |format=pdf |title=Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management |author=The President's Working Group on Financial Markets |publisher=U.S. Department of the Treasury |date=April 1999}}</ref> Hedge funds invest in a diverse range of markets, and use a wide variety of investment styles and financial instruments.<ref name=PWGOFM>{{cite web |url=http://www.treasury.gov/resource-center/fin-mkts/Documents/hedgfund.pdf |format=pdf |title=Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management |author=The President's Working Group on Financial Markets |publisher-U.S. Department of the Treasury |pages=1-3 |date=April 1999 |accessdate=18 September 2013}}</ref> Though they are privately owned and operated, hedge funds are subject to the regulatory restrictions of their respective countries.<ref name=":0" /> U.S. regulations, for example, limit hedge fund participation to certain classes of investors (see [[accredited investor]]s,<ref name=":0">{{cite web|title=Accredited Investor|url=http://www.sec.gov/answers/accred.htm|publisher=U.S. Securities and Exchange Commission|accessdate=Feb 22, 2013}}</ref> qualified purchasers) and also limit the total number of investors allowed in the fund.

The definition I offer draws from two reliable sources: the aforementioned Stuart McCrary book and a 1999 President’s Working Group on Financial Markets report, which is also referenced by McCrary.

You'll see that I added "limited liability company" in addition to "limited partnership" as an example of a common HF structure. I also use the broader term "pooled investment vehicle" instead of "collective investment scheme". I kept the final two sentences intact, but cut out the existing claim that "the term 'hedge fund' refers more to the structure of the investment vehicle than the investment techniques." I don't think this is untrue, but the claim isn't sourced, and it doesn't seem necessary for the introduction. Maybe we could find a source and place it in the Strategies section? Lastly, Wildfowl, the former reference [2] (the SEC link) is now [3] in my suggested update. What would you prefer to do with this?

If these changes seem neutral and acceptable, feel free to implement. As always, I am more than happy to reply to any questions or concerns. And once we have consensus, I'd be happy to discuss other changes later in the intro, such as John's point about regulatory issues being discussed in multiple grafs. Cheers, WWB Too (Talk · COI) 13:17, 24 September 2013 (UTC)

I'd like to get the whole intro fixed, not just the first paragraph, and the rest of the intro should be easier to deal with anyway. More specific comments on this paragraph:

• It's good to add "limited liability company," but perhaps we should add "or similar vehicle." Almost all hedge funds in the U.S. are limited partnerships or LLCs, but other vehicles may be used in other countries.
• I'm happy with "pooled investment vehicle"; should we still include a link to the broad collective investment scheme article?
• I think we should say somewhere in the intro that the name "hedge fund" refers to the hedging techniques used by some early hedge funds, but hedge funds today do not necessarily hedge. From a leading treatise: "The term "hedge fund" refers to the fact that these funds have traditionally used sophisticated hedging of positions to manage investment risks—-i.e., a hedge fund will often seek to "hedge" its investments. In practice, however, a wide variety of hedge funds exists, many of which may not hedge their investments." Gerald T. Lins, Thomas P. Lemke, Kathryn L. Hoenig & Patricia Schoor Rube, Hedge Funds and Other Private Funds:Regulation and Compliance § 1:1 (2012 - 2013 ed.).
• I'm still troubled by the fact that this paragraph gives no indication that a hedge fund is different from a private equity or venture capital fund. I realize that formal definitions often fail to make this distinction, and much of the regulation is the same, but in practice these are considered two different animals.
• Now that I look more closely at them (sorry, I should have done this in my previous post), the last two sentences don't stand up very well. I think it would be more accurate to combine them into one and say that "hedge funds usually are structured to minimize regulatory oversight; they are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public." You can cite Lins, et al. again. Actually, it's a little misleading to say that investors must be accredited, because normally U.S. investors must be qualified investors, a slightly higher standard, but this general language is probably good enough for the intro.
• I don't know if I would get into the numerical limit, because that limit now is 2,000 record holders, not counting indirect holders--not much of a limitation. — Preceding unsigned comment added by John M Baker (talk • contribs)

Some points:

• I feel that the definition should point out the clear blue water between HFs and more conventional collective investments (assuming there is some nowadays!), and that neither the current nor the proposed definition quite achieves this.
• Does the first instance of citation [3] in the proposed text actually back up the statement made? I'm getting the impression that there has been a mess-up in the past and this is the wrong reference. Tell me I'm wrong.

John, you've got some strong ideas – why don't you throw together a draft intro for the rest of us to consider? Wildfowl (talk) 22:38, 24 September 2013 (UTC)

I don't really want to rewrite it from scratch, but WWB Too's version is close enough that I can make a few changes:

Proposed Introduction replacement

A hedge fund is a pooled investment vehicle administered by a professional management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. They are usually distinguished from private equity funds, which use the more illiquid investment strategies associated with private equity. Hedge funds invest in a diverse range of markets and use a wide variety of investment styles and financial instruments. The name "hedge fund" refers to the hedging techniques traditionally used by hedge funds, but hedge funds today do not necessarily hedge. Hedge funds usually are structured to minimize regulatory oversight; they are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public.

References

A cite is needed for the second sentence, but I don't think that should hold us up if people are otherwise happy with the language. John M Baker (talk) 23:22, 24 September 2013 (UTC)

I'm going to take the lack of response as support. John M Baker (talk) 02:09, 27 September 2013 (UTC)

I've de-tagged it, but don't anybody take that as meaning that no further improvements are possible! Wildfowl (talk) 22:29, 27 September 2013 (UTC)

Apologies for the delayed reply. I have been extremely busy and hadn't had an opportunity to review recent comments and edits until just now. Thank you John M Baker and Wildfowl for updating the introduction and removing the tag. The new language is a significant improvement, but I do see one area that needs slight refinement.

The sixth and final sentence in the first paragraph briefly addresses regulatory issues. The sentence's second clause is fine, but the first clause—"Hedge funds usually are structured to minimize regulatory oversight"—strikes me as somewhat undue weight, especially given the information provided in the fourth paragraph, which states that Dodd-Frank and similar European regulations have increased regulatory oversight. I'm not contesting it as a point of fact, necessarily, but questioning its relevance for the lead. Besides, the language in the Hedge_fund#Domicile_and_taxation section specifies that a hedge fund's structure is usually determined by the tax expectations of the fund's investors, although regulatory considerations do play a role.

As such, I'd suggest using language from an previous version of the introduction that had consensus from several editors active on the page at the time. This wording states simply that:

Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators.

The last paragraph should then provide further details about historical context and recent regulations. Thoughts? And apologies again about my delayed feedback. Cheers, WWB Too (Talk · COI) 19:57, 4 October 2013 (UTC)

It's still true that hedge funds are structured to minimize the extent to which they are subject to regulation, even though they're regulated now more than they were formerly. (They're also structured for pass-through taxation, of course; entities are often structured for more than one thing.) If you'd prefer not to put this in the first paragraph, I guess I don't object, though I'm not going to change it myself. I would prefer that the sentence otherwise stay the same (at least, as compared to going back to the old language):

Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public.

So if someone else wants to make this change, go ahead. John M Baker (talk) 19:41, 11 October 2013 (UTC)

It would seem that the clause in point is (a) true, and (b) important, or so it seems to me, so I personally would be against change. Hedge funds tend to be registered in places like the Cayman Islands, and I have always assumed that was at least in part to avoid irksome regulation. The first para is something of a definition of a hedge fund, and should have this kind of information in it. The final para makes it clear that regulation has been tightened up. Wildfowl (talk) 23:22, 12 October 2013 (UTC)

John and Wildfowl, thank you for the responses. I wonder if simply rearranging the clauses and including a bit more detail would be a good compromise? François-Serge Lhabitant's Handbook of Hedge Funds—which is currently cited nine times within the article—offers a good summary of structure and regulation on the first page of chapter 3. We could combine that language with the current Lins et al source to say the following:

Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public. As such, they generally avoid direct regulatory oversight, bypass licensing requirements applicable to investment companies, and operate with greater flexibility than mutual funds and other investment funds.

Replacement markup

Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public.<ref name=Lins/> As such, they generally avoid direct regulatory oversight, bypass licensing requirements applicable to investment companies, and operate with greater flexibility than mutual funds and other investment funds.<ref name=LhabitantChapter3>{{cite book |url=http://books.google.com/books?id=zVubHUSOxpoC&pg=PT52&dq=hedge+funds+structure+oversight&hl=en&sa=X&ei=LlllUveGB-m6yAGYi4H4BA&ved=0CH8Q6AEwCQ#v=onepage&q=hedge%20funds%20structure%20oversight&f=false |chapter=3: Legal Environment |author= François-Serge Lhabitant |year=2007 |publisher=John Wiley & Sons |isbn=0470026634}}</ref>

Does this work? Let me know what you think, and apologies once again on my delayed response. WWB Too (Talk · COI) 19:42, 21 October 2013 (UTC)

I'm happy with that language. John M Baker (talk) 20:10, 21 October 2013 (UTC)

Right on. Wildfowl? WWB Too (Talk · COI) 20:22, 21 October 2013 (UTC)

No objection here. Are we the only three people in here? Wildfowl (talk) 19:33, 22 October 2013 (UTC)

Have been for awhile, I think. Anyone want to make the update? WWB Too (Talk · COI) 19:59, 22 October 2013 (UTC)

OK, I made the change. Nobody but us has posted on the talk page for over 3 months, except for bots. John M Baker (talk) 20:21, 22 October 2013 (UTC)

Please avoid the term "investment vehicle" in the lead. It smacks of shop talk and in combination with "pooled" it makes for downright strange language. If you don't like the name of the article you're actually linking the description to, at least come up with something that would be recognizable to the uninitiated. Or request to have collective investment scheme moved.

Peter ^Isotalo 17:38, 10 July 2014 (UTC)

Pooled Investment Vehicles or Collective Investment Schemes

Recent edits have changed the description of hedge funds in the lead from "pooled investment vehicles" to "collective investment schemes." It's true that we need to change the name of the "collective investment scheme" article. In the meantime, however, this article is written in American English, which is appropriate, because hedge funds are primarily an American phenomenon. They should not be described as "collective investment schemes," which is esoteric and pejorative in American English. I would be open to calling them something other than "pooled investment vehicles." Strictly speaking, they are a flavor of "private investment companies" or "private funds." John M Baker (talk) 19:22, 10 July 2014 (UTC)

We all understand that "hedge fund" is a euphemism for "speculation fund". If you can think of a description that is both correct and avoids the no-no word "speculation", congratulations and feel free to incorporate it into the articled, I say. Wildfowl (talk) 21:40, 11 July 2014 (UTC)

Withdrawn holding

User 76.102.125.93 added in "Withdraw holding: No major withdraw within 90 days prior of initial launch from brokerage. Trading may still be in effect, but funds cannot be removed or withdrawn from brokerage." to the list in subsection "Relative value" under section "Strategies". I did not understand this and thought it was a mistake, so I removed it. Please correct me if I am wrong. Wildfowl (talk) 21:55, 20 July 2014 (UTC)

missing etymology/word origin of "hedge fund"

not sure how to write a section properly with references, so im adding it to the talk page

http://www.phrases.org.uk/meanings/hedge-your-bets.html

"The verb 'to hedge' derives from the noun hedge, that is, a fence made from a row of bushes or trees. These hedges were normally made from the spiny Hawthorn, which makes an impenetrable hedge when laid. To hedge a piece of land was to limit it in terms of size and that this gave rise to the 'secure, limited risk' meaning. Hedge funds, much in the news nowadays, take their name from their method of limiting, that is, hedging, their risk."

although limiting risk may not be the primary goal, according to http://www.investopedia.com/terms/h/hedge-fund-manager.asp

"Hedge funds can be considered high risk because they pursue aggressive investment strategies and are less regulated than many other types of investments."

Magicalbendini (talk) 14:23, 23 July 2014 (UTC)

Done. See Hedge fund#Etymology. Please feel free to edit what I've done, as always. Wildfowl (talk) 11:04, 25 July 2014 (UTC)

Per my edit summary, I reject Investopedia as RS for anything more than simple definitions of financial terms. There will always be better RS references than Investopedia and much of the current text concerning hedging is unverified and weasel-worded. What does "short the market" mean? Funds trade specific positions. The early hedge funds attempted to balance equal amounts of long and short exposure. SPECIFICO talk 00:14, 27 July 2014 (UTC)

Bloomberg article link not working.

Link number 11 is dead,

Ismail, Netty (21 February 2011). "Institutions Damp Hedge Fund 'Startup Spirit,' Citi's Roe Says". Bloomberg Businessweek. Retrieved 11 March 2011.

http://www.businessweek.com/#

When I clicked on this, Bloomberg said the article was no longer available.

December 10, 2014 — Preceding unsigned comment added by 152.17.152.93 (talk) 22:13, 10 December 2014 (UTC)

Have marked it as a "dead link". Hopefully somebody will fix the link. Wildfowl (talk) 01:06, 11 December 2014 (UTC)

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politics

I see this article does not say anything about the people who are in politics in hedge funds like bruce poliquin from maine — Preceding unsigned comment added by 198.52.13.15 (talk) 12:30, 22 October 2016 (UTC)

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News Articles?

Are newspaper articles properly included in these pages? They do not add anything to the content, and quickly become outdated. Shouldn't they be removed?

NPOV (not op-eds generally) newspaper articles are valid sources for Wikipedia articles. They should not be removed unless there is a specific concern about one or more, on a case by case basis.--FeralOink (talk) 15:49, 19 April 2018 (UTC)

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