My wife was impressed by a news item that said top hedge fund managers have earned nearly $20 billon and this amount is more than the combined GDP of Afghanistan and Mongolia. Encouraged by this, she promptly started learning about hedge funds. I always knew that she was ambitious but this was beyond my imagination. A few days later she informed us that we would meet some of the top hedge fund managers, including a trusted aide of Carl Ikahn, who is considered a guru in all these matters.
On the appointed day, she did meet one of the bright sparks. Her opening shot was spot on: she praised the brilliant financial brains responsible for the success of hedge funds. The young man was thrilled; he asked her if she invested in the Indian stock market. She replied that she has been reasonably successful in equities in the last few years.
Now, she added, in uncertain and volatile conditions, it would be a test of investment skill to make money. She was not content with just beating the market index but like hedge fund managers made money in all markets by short-selling that are off-limit to other money managers. She stressed that she was against leveraged positions as those increased the risk. The financial wizard looked at her with respect. At least, that’s what I thought. Even our Harvard-educated Finance Minister had admitted that he did not fully understand as to how hedge funds worked. But my bride of 40 years appeared to have cracked it all.
She asked him how difficult it was to start a hedge fund. He said that anyone could start a fund and the majority of the 6,000-odd such funds operated from backyards and garages. By now my wife was hooked on. But then she asked the critical question: “How much initial investment is necessary to start a fund?” “A few millions should do the trick to meet the local regulations,” pat came the reply. “US dollars or...?” she almost asked but thankfully decided against it.
I sighed in relief.