Hedge Fund History

While a few investors such as Warren Buffett adopted the structure that Jones created, he and his structure was not widely known until 1966. In that year, people noticed that Jone’s fund outperformed the best mutual fund over the previous five years by 44 percent, despite its management-incentive fee. On a 10-year basis, Mr. Jones's fund had beaten the next top performer, the Dreyfus Fund by 87 percent. The same year, the term 'hedge fund' was coined to describe Jones’s approach.
In total, Alfred Jones's investors lost money in only 3 of his 34 years.

Hedge funds fully came into prominence in the late 1980’s. The 1990’s saw hedge funds become major drivers of the stock market. This was also the time for one of hedge funds greatest successes and failures, Long Term Capital Management. LTCM (as it was commonly referred to) was a hedge fund founded in 1994 by John Meriwether (the former vice-chairman and head of bond trading at Salomon Brothers). Initially enormously successful with annualized returns of over 40% in its first years, in 1998 it lost $4.6 billion in less than four months and became a prominent example of the risk potential in the hedge fund industry.