Alfred Winslow Jones was a Harvard graduate and former Vice Consul for the US Embassy in Berlin. In 1941 he wrote a thesis called Life, Liberty, and Property: A Story of Conflict and a Measurement of Conflicting Rights as part of his doctorate in Sociology at Columbia University.
The thesis covered attitudes toward corporate property in Akron, Ohio. Fortune magazine reprinted sections of the book and Jones later joined Fortune’s editorial staff.
In 1949, Jones left the magazine to start his own money management firm – A.W. Jones and Co.
Jones developed a strategy where he attemped to hedge market risk by going both long and short the market in equal measure, so that he would succeed regardless of whether the market rose or fell. Fortune first used the term ‘hedge fund’ to describe Jones’ fund in a 1966 article.
Jones’ analysis of the Investment Company Act of 1940 showed that a private partnership structure can remain unregulated as long as it’s investors are accredited. Working with accredited or qualified investors allows managers to use techniques such as increased leverage and short-selling which typically limits other funds and investment companies.
His choice of management fee structure was also groundbreaking. Charging investors 20% of the fund’s realized profits has become an industry standard to this day. Having pioneered these ideas, Jones is sometimes referred to as the father of the modern hedge fund industry.