As the US dollar weakened following the Brexit vote and US stocks plummeted, hedge funds began to pile into the fray.
But how much of this surge has come from the US market itself?
Is hedge fund trading really an international phenomenon?
And if so, how much is based on a common knowledge that hedge funds are inherently riskier than other companies?
Al Jazeera’s Mark Toner investigates the origins of the boom in the hedge fund world.
Read more about the rise and fall of hedge fund stocks:Investment analysts at the investment firm J.P. Morgan Securities are now calling the hedge funds they’ve been following for years the world’s largest.
But are hedge funds really the world at large’s biggest players?
Algerian hedge fund manager Anwar El-Faisal, who co-founded a hedge fund in the early 2000s with his brother and fellow Algerian Mohamed, said his company had never seen a spike in activity during the financial crisis.
“If you look at our portfolio over the last 15 years, we have not seen a single one,” he said.
“I am not talking about the [emergency] fund, which is a very risky position.”
A hedge fund is an investment vehicle, or an entity that holds investments, that uses its own money to invest in a range of investments, said Benjamin Wegner, professor of finance at the University of Massachusetts Dartmouth, who studies the global investment landscape.
“You would be talking about a very large portfolio that is backed by your own money, and that you would use to take a risk on the markets,” he told Al Jazeera.
Wegner said that although hedge funds had been a keystay of the global financial markets, they were increasingly seen as the next big thing, with more than 80% of funds now listed on the New York Stock Exchange.
“Now that hedge fund investors have gone global, they are really becoming a global player,” he added.
Global markets in general are more liquid than the traditional markets, and therefore less volatile, according to Wegnener.
But there are certain hedge funds that have become more volatile.
One such is the Fundación Nacional de Hedge Fundes, which manages investments in more than 40 hedge funds around the world, according its website.
It’s unclear exactly how much hedge fund funds are buying into the markets, or how much their returns are hedged against the market, but a recent study by consultancy Deloitte and investment firm BlackRock suggested that the fund may be hedging against the possibility of a US default.
In recent years, hedge fund managers have been making money on the market.
In the past, their biggest bets were on bonds and currencies, but they have also been buying up shares of other companies.
“When they’re looking at the US, they’re investing in a basket of stocks,” said Wegners.
“In the past year or so, they’ve invested in all the major emerging markets and in gold.”‘
It’s a matter of perception’It is common for hedge fund firms to focus on the big players in the market and say they have the best strategies.
They often have a reputation for having better returns and higher returns than the average hedge fund, according the website of investment firm Wealthfront.
But the funds themselves may not be quite so impressive, according a new study by the International Institute for Sustainable Investment, which looked at hedge fund performance in 10 countries since 2000.
“They are not really the best performers on the [global] stage,” said Michael Chant, a professor at the Wharton School of Business and the co-author of the study.
“For example, there’s a hedge that invests in bonds in the US but also invests in gold.
In my opinion, that is not a hedge.”
The fund’s strategy is to buy the biggest companies with the most capital, he said, while it then buys those companies with cheap debt and low risk.
“The hedge is not investing in the best companies, it’s investing in what it sees as the best bets,” Chant said.
“It’s not necessarily the best returns, but it’s certainly the best bet.
The IISI study was published in the International Journal of Sustainable Finance.
In this research, the authors analyzed a variety of indicators of investment performance and concluded that hedge-fund performance was generally not a strong predictor of the performance of other investors.
We have to look at that, because you cannot hedge without looking at underlying portfolio risk,” said John Siegel, an expert on investment strategy at George Washington University.”
IISI does not analyse the underlying portfolio risks and thus cannot say what percentage of a fund’s assets are hedges,” the study stated.
“We have to look at that, because you cannot hedge without looking at underlying portfolio risk,” said John Siegel, an expert on investment strategy at George Washington University.
In a recent report, the IISII found that hedge firms invest in around 40% of their portfolios in the United