Hedge Crunch Financial

Long Island is experiencing the same private equity boom which is influencing business takeovers as the rest of the country as other sources of capital dry up and companies continue to go, or consider going, private. As hedge funds look for investment opportunities in private industry, Long Island investment firms are ready to play their role.

The President of Northwood Ventures, based in Syosset, Long Island, Peter Schiff,  said the private equity boom is being keenly felt on Long Island.

“Overall, the private equity market is very active,” Schiff said. “Our marketplace is very active. We’re working with smaller companies.”

Corey Ribotsky, head portfolio manager of the NIR Group, of Roslyn, New York is also involved in the excitement. Having over ten years of experience in these types of investments makes the NIR Group especially well positioned to benefit from the current economic reality.

As companies go private they are not only in need of investment forms to ease the way. Law firms and accounting firms are also benefiting from the trend, and many Long Island firms are participating.

For the curious among us, here is a brief history of hedge funds.

A man named Alfred W. Jones is credited with creating the first hedge fund in the year 1949. He was not only a financial journalist but an author and sociologist as well. Jones’ understanding of price fluctuations of individual assets considered two separate components, the performance of the asset itself and the movement of the market as a whole.
Keeping these two separate components in mind he structured his fund in such way as to neutralize the effect of the overall market movement on his assets. He created a balanced, conservative portfolio by purchasing assets whose price he expected to perform better than the market ‘selling short’ assets which he expected to be weaker than the overall market performance. In this way Jones was able to reduce the risk of his fund’s loss in value due to market fluctuations since if the market goes down, his shorted assets’ value will increase even though his assets purchased long would go down; And if the market goes up, the gain in the ‘long’ assets would be cancelled by the loss of the ‘short’ assets value.

This type of fund became known as a ‘hedge’ fund, because by covering the risk of the market going either up or down you have ‘hedged’ your bets, so to speak- protected them on both sides.

Aside from a few notable exceptions Jones’ hedge fund approach to investing was not widely known until an article appeared in 1966 by Carol Loomis in Fortune magazine. Loomis praised Jones’ fund, coining the term ‘hedge fund’ and noting that his fund had outperformed the best mutual fund’s performance by 44% over the past five years and by 87% over the past 10 years.

Over the following three years over 130 hedge funds were begun.