The Rise of the Hedge Funds and Private Equity
The term “hedge fund” has been variously defined, but, in essence, it is an “investment company” with some characteristics of a mutual fund, in which investor funds are collectively invested by an investment adviser or “manager.” Hedge funds generally trace their history back to A.W. Jones, an entity created by Alfred Winslow Jones, William P. Osterberg, and James B. Thomson in 1949. However, one author has identified the stock pool operators of the 1920s as a form of hedge fund. Those pools were groups of speculators who contributed funds to the pool for management by a pool operator, who would then take large speculative positions in publicly traded stocks, often manipulating their prices in the process.1 In 1929 such pools manipulated more than a hundred stocks listed on the New York Stock Exchange (NYSE). One of the more famous pool operations involved the stock of RCA, which soared to $101 per share in 1929, before dropping to $2 after the stock market crash that year. Banks supplied large sums to finance the operations of these pools. Chase National Bank, for example, placed over $800 million into various pools in 1929.