The stock market, which is frequently talked about in the news and in political debates, is an important part of our economy. One of the most current discussions regarding the stock market is hedge funds and Game Stop. 

Hedge funds are alternative investments using pooled funds to use different strategies to earn active returns for their investors. This means that they may use non conventional methods to earn money. Hedge funds are less regulated than mutual funds or other investment vehicles. The hedge fund industry has grown over the past 20 years and has been subject to controversy. The main people who invest in these hedge funds are Institutional investors. Institutional investors consist of entities that pool money to purchase securities, property, and other investment assets. This includes banks, credit unions, and insurance companies.

As stated in a previous story, redditors have been rising up against hedge funds by holding investments and raising stocks in struggling companies. This makes the hedge funds lose money in their short term investments. 

Whether we like it or not, hedge funds play a huge part in our economy. There are some pros and cons to hedge funds:

Harvard Law Forum states that studies have shown that hedge funds can help financial markets by providing liquidity and improving price efficiency. They do this with their ability to invest in liquid assets. And liquidity means more cash in our pockets. They had also found that hedge funds, for the most part, don’t employ value-destroying policies. 

Even with the hedge fund method being known as safe and secure, hedge funds draw a lot of risk into the market. Kimberly Amadeo from “The Balance” states that hedge funds use methods that have a high return in a good market, and a high loss in a bad one. They use high stakes strategies, such as borrowing money and buying and selling securities, in the hopes of a good return. This doesn’t always happen. When the market drops, it takes an even bigger turn due to the hedge funds. It is claimed that Hedge Funds caused the 2008 financial crisis. 

Hedge funds have also had a big part in businesses going bankrupt. One of hedge funds investment strategies is buying so many stocks in one company that they have a say in the company they are investing in. Paul R. La Monica with CNN stated that with this, the owners of these hedge funds had taken control of the company, followed by poor decisions and the falling of the company. Companies such as Kmart and Sears had died due to these hedge fund decisions. 

Although these companies had already been on a downhill slope, people such as students at TJ still cared and hoped the businesses wouldn’t fold. Out of AMC, Nokia, Naked Fruit Juice, and Gamestop, AMC was the most cared for. (Interview). People cared for the nostalgia and the jobs that followed the businesses. AMC, a more recent live business, had fallen due to covid restrictions. They are hoping that business will start up again as restrictions are lifted. 

Hedge funds can both help and hurt the stock market. Whether we are up to deal with the risk is the question. Some may say it’s just a part of the economy, but as long as we have faith in these businesses, we must do all we can to keep them afloat. From Swarm TV, I’m Chloe Brooks.

https://www.investopedia.com/terms/h/hedgefund.asp

https://www.thebalance.com/how-hedge-funds-created-the-financial-crisis-3306079

https://www.cnn.com/2018/10/16/investing/retail-sears-private-equity

The Economics and Finance of Hedge Funds