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3.2.09

Can there be an Islamic Hedge Fund?

First we have to define what a Hedge Fund truly is.

This interesting article from Fortune Magazine speaks of the demise of the HF in... 1969. Warren Buffet was planning on winding his down, the SEC was thinking of regulating further, leverage was disappearing and returns were dismal.

The article is exceptionally well documented, interview managers, investors, etc. Fascinating reading and worth the length.

And defines what makes a HF different:

  1. Leverage
  2. Short-selling
  3. Compensation Scheme
We will explore each of these aspects and shariah-compliant means of achieving them (or not!).

As one of my friends put it, HFs are described as an asset class. They're not an asset class--they're a compensation scheme.
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1 comment:

  1. - I definitely see hedge funds better defined as a compensation scheme or perhaps more broadly as a business model. Thus from the investor perspective the key determination is whether an Islamic hedge fund business model is viable or not.

    - To the 3 elements that make a hedge fund (leverage, short-selling, compensation scheme) I would add a fourth: uncorrelated returns - regardless of how illusive that might be.

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