Alfred Winslow Jones

Infobox Person
name = Alfred Winslow Jones


caption =
birth_date = 9 September 1900
birth_place = Melbourne, Australia
death_date = 2 June 1989
death_place = Redding, Connecticut, United States
residence = Redding, Connecticut
New York City
known_for = Founder of first modern hedge fund
employer = Foreign Service
Fortune magazine
A. W. Jones
occupation = sociologist
journalist
Hedge fund manager
spouse = Anna Luise Hauser née Block
Mary Carter
children = Anthony Winslow Jones
Dale Burch

Alfred Winslow Jones (9 September 1900 - 2 June 1989), a sociologist, author, and financial journalist, is credited with forming the first modern hedge fund and is widely regarded as the father of the hedge fund industry. [ Steve Johnson, [http://www.ft.com/cms/s/10bb2ef0-f31c-11db-9845-000b5df10621,dwp_uuid=ae2b356c-f3d6-11db-88aa-000b5df10621,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F10bb2ef0-f31c-11db-9845-000b5df10621%2Cdwp_uuid%3Dae2b356c-f3d6-11db-88aa-000b5df10621.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Freports%2Fhedgefunds2007 A short history of bankruptcy, death, suicides and fortunes] , "Financial Times" 27 April 2007 ]

Background

Jones was born in Melbourne, Australia, the son of Arthur Winslow Jones (an executive of General Electric) and his wife, Elizabeth Huntington. He moved to the United States with his family when he was 4. He graduated from Harvard University in 1923, and, after working as purser on a tramp steamer that sailed around the world, he joined the Foreign Service. In the early 1930s, he became vice consul at the U.S. embassy in Berlin during Hitler's rise to power. In 1932, for a couple of months he was married to Anna Luise Hauser, née Block (1896-1982), a daughter of the painter Joseph Block. [Marriage certificate, Amtsgericht Berlin-Tiergarten, Berlin/Germany, Nr. 38/1932] In 1936, he married Mary Carter, with whom he travelled through Spain during that country's civil war, reporting on civilian relief for the Quakers. In 1941, he earned a doctorate in sociology at Columbia University.John Russell, [http://query.nytimes.com/gst/fullpage.html?res=950DEEDC173BF930A35755C0A96F948260 Alfred W. Jones, 88, Sociologist And Investment Fund Innovator.] "NY Times" 3 June 3 1989: Section 1, Page 11 ] He then completed his doctoral thesis, "Life, Liberty and Property", a survey of attitudes toward corporate property in Akron, Ohio. [Alfred Winslow Jones, [http://www3.uakron.edu/uapress/jones.html "Life, Liberty, and Property, A Story of Conflict and a Measurement of Conflicting Rights."] The University of Akron Press]

The education of Dr. Jones

During the 1940s Jones worked for Fortune magazine and wrote articles on non-financial subjects such as Atlantic convoys, farm cooperatives, and boys' prep schools. [ Alexander M Ineichen, [http://www.gloriamundi.org/picsresources/rb-ai.pdf In Search of Alpha] , "UBS Global Equity Research" "October 2000": 153 ] In March 1949, Jones was investigating technical methods of market analysis for an article titled "Fashions in Forecasting", reporting on a new class of stock-market timers and the approaches they employed to call the market. He studied a dozen or so of these "technicians", whose approaches ranged from volume/price ratios to odd-lot statistics to the outcome of the Yale-Harvard football game. [Stephen J. Brown, [http://pages.stern.nyu.edu/~sbrown/omniscient.pdf Hedge Funds: Omniscient or Just Plain Wrong?] "NYU Stern School of Business"9 March 9 2001 ]

In "Fashions," Jones assessed each approach, sometimes harshly and other times positively. For example, Jones commented on one analysis that "…the market trend succeeded itself 62.5 times out of a hundred and reversed itself 37.5 times. The probability of obtaining such a result in a penny tossing series is infinitesimal." Jones was looking for approaches that offered better than a 'fair game.' He noted that certain approaches require trending markets, others work in higher volatility environments, still others in improving credit markets. He was beginning to feel his way down a dimly lit path toward what today would be considered a factor-based approach to portfolio construction. [ Michael Litt, [http://www.aei.org/publications/pubID.24369/pub_detail.asp Prudence: Paradigm Shift in Pension & Wealth Management.] "AEI POLICY SERIES" 15 May 2006 ]

Jones's comments on Nicholas Molodovsky's work showed he thought highly of it. In one passage on Molodovsky he said, "Well controlled experimental work of this nature is important and likely to become more accurate as the methods are further developed." He hinted at the approach of risk-weighting individual stocks, as well as quantifying how far a stock has diverged from its fundamental value.

The research gave him the idea to try his own hand at investing. Two months before the Fortune article went to press, Jones had established an investment partnership that would exploit this new style of investing. He raised a total of $100,000, $40,000 of which was his own. In its first year the partnership's gain on its capital came to a very respectable 17.3 percent. [Alan Rappeport, [http://www.cfo.com/article.cfm/8914091/c_8913455 A Short History of Hedge Funds.] "CFO Magazine" 27 March 2007]

The birth and development of the hedge fund concept

Jones married two speculative tools to create what he considered a conservative investment scheme. He used leverage to buy more shares, and used short selling to avoid market risk. He bought as many stocks as he sold, so market-wide moves up or down would be a wash on the total value of such a portfolio. The crucial question, then, would not be the direction of the market but whether the manager had picked the right stocks to buy and sell. The fund avoided requirements of the Investment Company Act of 1940 by limiting itself to 99 investors in a limited partnership. Jones chose to take 20 percent of profits as compensation. He charged no fee unless he made a profit. [David Skeel, [http://www.legalaffairs.org/issues/November-December-2005/feature_skeel_novdec05.msp Behind the Hedge.] "Legal Affairs" Nov./Dec. 2005 ] These elements: a partnership structure where a percentage of profits is paid as compensation to the general partner/fund manager, a small number of limited partners as investors, and a variety of long and short positions, are the core elements of hedge funds today. [ David A. Vaughan, [http://www.sec.gov/spotlight/hedgefunds/hedge-vaughn.htm Comments for the U.S. Securities and Exchange Commission Roundtable on Hedge Funds.] 14-15 May 2003 ]

While a few investors, including Warren Buffett and Barton Biggs, adopted the structure that Jones created, he and his structure was not widely known until 1966. That year Carol Loomis wrote an article called "The Jones Nobody Keeps Up With." Published in Fortune, Loomis' article lionized Jones and his approach. The article's opening line summarizes the results at A.W. Jones & Co.: "There are reasons to believe that the best professional money manager of investors' money these days is a quiet-spoken seldom photographed man named Alfred Winslow Jones." [Loomis, Carol, "The Jones Nobody Keeps Up With." "Fortune" April 1966: 237–247 ] Coining the term 'hedge fund' to describe Jones' fund, it pointed out that his hedge fund had outperformed the best mutual fund over the previous five years by 44 percent, despite its management-incentive fee. On a 10-year basis, Mr. Jones's hedge fund had beaten the top performer Dreyfus Fund by 87 percent. This led to a flurry of interest in hedge funds and within the next three years at least 130 hedge funds were started, including George Soros's Quantum Fund and Michael Steinhardt's Steinhardt Partners. [* Sharon Reier, [http://www.iht.com/articles/2000/12/02/mhist.t.php From Jones to LTCM: A Short (-Selling) History.] "International Herald-Tribune" (December 2, 2000) ]

Alfred Jones's investors lost money in only 3 of his 34 years. By contrast, the S&P500 had 9 down years in during a similar period. Jones's worst year was the fiscal year that ended on 31 May 1970, when he lost 35.3% (the S&P lost 23.4% over the same period). Alex Porter, one of Jones's portfolio managers, confirmed that their market exposure was aggressive, perhaps up to 120%. By contrast, Jones did relatively well during the market downturn of 1973-1974 by being conservative. [ [http://www.jonesmodel.info/pdf/jones_model_named_Q4_95.pdf Jones Model Funds.] "Hedge Fund Review" 4Q (1995): 2]

Later years

In 1984, Jones transformed his fund into a fund of funds, investing its capital in other hedge funds with different areas of expertise and investment styles. He gradually disengaged himself from his office and gave his time to the Peace Corps and even tried to establish a "reverse Peace Corps" in which aid recipients would send their own volunteers back to the United States to work with the poor in this country, as a "hedge" against creating a culture of inferiority among developing countries. [Hugo Lindgren, [http://nymag.com/news/features/2007/hedgefunds/30345 Long-Short Story Short.] "NY Magazine" 16 April 2007 ]

References

ources

* John Russell, [http://query.nytimes.com/gst/fullpage.html?res=950DEEDC173BF930A35755C0A96F948260 Alfred W. Jones, 88, Sociologist And Investment Fund Innovator.] "NY Times" 3 June 3 1989: Section 1, Page 11
* Hugo Lindgren , [http://nymag.com/news/features/2007/hedgefunds/30345 Long-Short Story Short.] "NY Magazine" 16 April 2007
* David A. Vaughan, [http://www.sec.gov/spotlight/hedgefunds/hedge-vaughn.htm Comments for the U.S. Securities and Exchange Commission Roundtable on Hedge Funds.] 14-15 May 2003
* [http://www.awjones.com/historyofthefirm.html A.W. Jones, History of the Firm]
* Sharon Reier, [http://www.iht.com/articles/2000/12/02/mhist.t.php From Jones to LTCM: A Short (-Selling) History] , "International Herald-Tribune" 2 December 2000
* David Skeel, [http://www.legalaffairs.org/issues/November-December-2005/feature_skeel_novdec05.msp Behind the Hedge.] "Legal Affairs", November/December 2005
* Alan Rappeport, [http://www.cfo.com/article.cfm/8914091/c_8913455 A Short History of Hedge Funds.] "CFO Magazine" 27 March 27 2007
* Michael Litt, [http://www.aei.org/publications/pubID.24369/pub_detail.asp Prudence: Paradigm Shift in Pension & Wealth Management.] "AEI POLICY SERIES", May 15, 2006

Extended bibliography

* Alfred Winslow Jones, " [http://www3.uakron.edu/uapress/jones.html Life, Liberty, and Property, A Story of Conflict and a Measurement of Conflicting Rights] ," 'The University of Akron Press
* ROGER LOWENSTEIN, WHEN GENIUS FAILED (2000);
* Scott J. Lederman, Hedge Funds, in FINANCIAL PRODUCT FUNDAMENTALS: A GUIDE FOR LAWYERS 11-3, 11-4, 11-5 (Clifford E. Kirsch ed., 2000);
*Brown, Heidi and John H. Christy. "Growing Pains." Forbes 11 June 11 2001: 74-77.
*Jones, Alfred Winslow. "Fashions in Forecasting." "Fortune" March 1949: 88-91, 180, 182, 184, 186.
*Landau, Peter. "Alfred Winslow Jones: The Long and the Short of the Founding Father." "Institutional Investor" August 1968:
*Landau, Peter. "The Hedge Funds: Wall Street's New Way to Make Money." "New York Magazine" 21 October 21, 1968: pp. 20-24.
*Lindgren, Hugo. "Long-Short Story Short: The Creation Myth." "New York Magazine" 16 April 16, 2007
*Loomis, Carol J. "The Jones Nobody Keeps Up With." "Fortune" April 1966: 237, 240, 242, 247.
*Loomis, Carol J. "Hard Times Come to Hedge Funds." "Fortune" June 1970: 100-103, 136-140.
*"Missing 'd.'" "Grant's Interest Rate Observer" 9 October 1998: 1-2.
*Scholl, Jaye. "Back to the Future." "Barron's" 31 July 31 2000: 32.
*Strachman, Daniel A. "Getting Started in Hedge Funds." New York: Wiley, 2000.
*Strauss, Lawrence C., "The Legacy." "Barrons" 31 May 2004

Persondata
NAME = Jones, Alfred Winslow
ALTERNATIVE NAMES =
SHORT DESCRIPTION = Australian-American sociologist, author, and financial journalist
DATE OF BIRTH = 9 September 1900
PLACE OF BIRTH = Melbourne, Australia
DATE OF DEATH = 2 June 1989
PLACE OF DEATH = Redding, Connecticut, United States