Hedge funds are financial institutions that invest funds for wealthy individuals and institutional investors (such as pension funds). The first hedge fund was created by Alfred Jones in 1949. Jones wanted to create a fund that could generate positive return no matter whether the stock market goes up or down. His idea was as follows: Jones believed that in rising markets, one could buy stocks that would rise more than the market, and sell short stocks that would rise less than the market. In falling markets, one could buy stocks that would fall less than the market, and sell short stocks that would fall more than the market. By balancing these strategies, Jones believed that his fund could yield a net profit in both rising and falling markets. In fact, during the 1950s and 1960s, Jones hedge fund consistently outperformed the best equity mutual funds. (Source: AIMA Canada Hedge Fund Primer, June 2004)

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