Title: HEDGE FUNDS 1 HEDGE FUNDS • By Robert J. Kiggins, Esq.

Of McCarthy Fingar, White Plains, NY • Presented on June 10, 2005 2 INTRODUCTION SURVEY- Hedge Fund History • Many think of this industry as a fairly new innovation, but its history began in the late 1940s and perhaps even the early 1930s • Alfred Winslow Jones was the first fund manager to combine a leveraged long stock position with a portfolio of short stock positions in an investment fund. Waiting Game Meaning Banks. • Using a private limited partnership structure for his fund, Jones was paid on an incentive fee basis. • Investors in Jones' little known fund enjoyed very handsome returns as his fund outperformed all mutual funds of the time. • However, Karl Karsten came up with the technique (in concept) in 1931 in a book entitled Scientific Forecasting published that year. • For example, Karstens theory for small funds that could not diversify across entire markets was Buy the stocks in the group predicted to rise most in comparison with the others, and sell short the leading stocks in the group predicted to fall most • The hedge fund idea started as a risk reduction technique to reduce risk with respect to the direction of the market or individual securities (either entirely long, or entirely short). Hedge funds used hedging tactics (e.g.