Handbook of Hedge Funds

Foreword

There is an old joke that goes like this: “Question: What is a hedge fund? Answer: Anything that charges 2 and 20.” The “2 and 20” refers to the typical fee arrangement of hedge funds where they charge an annual management fee of 2% and a profit sharing fee of 20%.

But where did this fee structure come from? Who started it? And how were they able to get away with such favourable fee terms? The answers are all in this book and much more.

First, François provides the best historical perspective on the hedge fund industry ever written. While many of us have already heard of Alfred Winslow Jones – the first hedge fund manager – François provides an historical perspective on Mr. Jones’ trading strategies that most people have never read before. He reviews A.W. Jones’ double alpha strategy and also shows us that Mr. Jones had the inside track on defining a stock’s beta long before the Capital Asset Pricing Theory became accepted practice. François also shows how another famous investor, Warren Buffett, was effectively a hedge fund manager (and still is) long before he became the “Oracle of Omaha.”

Chapters 3 and 4 provide an extensive discussion regarding the infrastructure that supports the hedge fund industry. Chapter 3 discusses the regulatory structure regarding hedge funds, placing particular emphasis on the United States where many hedge funds reside. François takes the reader through the quagmire known as the US Securities Laws. However, his presentation is not dull ...