Abstract

During the worldwide economic crisis of recent years, hedge funds have been accused by the investment community of exacerbating tensions on the financial markets. According to some, however, hedge funds are merely a scapegoat for the financial universe. The aim of this presentation is four-fold. First, to address the nature of this negative judgement from a range of perspectives – conceptual, ideological, operational and linguistic – on the basis of an analysis carried out on a comparable multilingual specialised corpus, made up of ten sub-corpora; second, to survey the universe of the operational activities and strategies of hedge funds and the analogies and differentiating aspects between hedge funds and fondi speculativi and fonds spéculatifs; third, to map the different connotations of the concept of speculazione/speculation and discuss the choice of the denomination fondi speculativi adopted by the Italian legislator, in the absence of an ad hoc law on hedge funds at a Community level; and fourth, to measure the change in ideological connotations when moving from the denomination fondi speculativi and fonds spéculatifs to fondi alternativi and fonds alternatifs and assess the degree of linguistic awareness of the Italian and European legislators compared to that of experts from the financial sector, academics and politicians.

Keywords: hedge funds, speculation, fonds spéculatifs, fonds alternatifs, fondi speculativi, fondi alternativi, speculazione

1. The universe of the hedge funds, of the ‘fondi speculativi’and of the ‘fonds spéculatifs’: between analogies and conceptual distinctions

In our paper I concetti di fair value e costo storico nel diritto contabile francese e italiano: riorganizzazione concettuale, implicazioni semantiche e problematiche traduttivo-terminologiche we carried out an in-depth analysis of the semantic and notional interferences linked to the choice of translational equivalents in a multilingual context which are unsubstantiated and thus evoke misleading associations and alter meaning at a referential level (Maldussi: 2009).[1] The case of the fondi speculativi under Italian law compared to American hedge funds may be rightly considered a case of terminological incongruency or, more precisely, a manifold case of partial equivalence.

As will be discussed in the present section drawing on various sources, the denomination fondi speculativi, chosen by the Italian legislator (Decreto del Ministero del Tesoro n° 228 of May 24 1999) to establish hedge funds under Italian law shows some substantial differences at a conceptual level with the American counterpart. We will start by defining the conceptual dimension of these investment vehicles. To this end we follow the analysis by Nigro and Romano in their online contribution La regolamentazione degli hedge funds negli USA: dal quasi-collasso di Long-Term Capital Management al Dodd-Frank Act. According to these authors, identifying unequivocally and precisely the nature of a hedge fund is not a simple matter and remains indeed a real challenge” (2013: 9). As the document Hedge Funds in Denmark and Internationally, cited in Nigro and Romano, confirms:

There is no clear, generally accepted definition of a hedge fund. The term covers a large number of different investment funds with very different risk profiles and investment strategies. Often they are private companies where a manager invests capital contributed by wealthy private individuals and in some cases institutional investors (Theusen, 2005: 99).

The Report of the French Assemblée Nationale, Rapport fait au nom de la commission d’enquête sur les mécanismes de spéculation affectant le fonctionnement des économies, reiterates the same concept adding that the Commission realized that hedge funds could not be defined and, in the absence of a clear definition, decided that the Directive would address all funds that were not UCITS:

À l’origine, il s’agissait de réguler les hedge funds, jusqu’à ce que la Commission s’aperçoive que ceux-ci ne pouvaient être définis. On ne peut en effet qu’en indiquer les caractéristiques – jeu contracyclique, utilisation de méthodes telles que le short selling pour obtenir la meilleure rentabilité en prenant le moins de risques possible. Au demeurant, la traduction littérale de hedge funds est « fonds de couverture ». Faute de définition des hedge funds, donc, la Commission a décidé que la directive viserait tout ce qui n’était pas OPCVM – organisme de placement collectif en valeurs mobilières, ou, en anglais, UCITS, undertaking for collective investment in transferable securities –, et par voie de conséquence les fonds immobiliers et le capital investissement, ou private equity (2010: 468).

In the face of the impossibility of an unequivocal definition, we will limit ourselves in collecting some of the most important available definitions, all of them sharing the same vagueness, and focus on some of the features characterizing these investment vehicles. The European Central Bank’s Financial Stability Review 2004, for example, focuses on the flexibility of these vehicles:

A hedge fund can be defined as a fund whose managers receive performance-related fees and can freely use, and do use, various active investment strategies to achieve positive absolute returns, involving any combination of financial leverage, long and short positions in securities, derivatives or any other assets in a wide range of markets (123).

Thanks to the already cited Theusen report, we are also able to discover the definition provided in the Report of The President’s Working Group on Financial Markets entitled Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management. The definition emphasizes the fact that these vehicles are not statutorily defined and that the compound term hedge funds tends to be a superordinate one, covering a wholes series of products sharing the same characteristics:

The term hedge fund is commonly used to describe a variety of different types of investment vehicles that share some similar characteristics. Although it is not statutorily defined, the term encompasses any pooled investment vehicle that is privately organized, administered by professional investment managers, and not widely available to the public. The primary investors in hedge funds are wealthy individuals and institutional investors. In addition, hedge fund managers frequently have a stake in the funds they manage. Entities classified as hedge funds are commonly organized as limited partnerships or limited liability companies, and in many cases are domiciled outside the United States (1999: 1).

The Theusen report offers us a key to dissipate the vagueness surrounding the concept of the hedge fund: ‘One way of describing what hedge funds are is to see them in relation to more narrowly defined and regulated investment schemes, e.g. investment associations’ (2005: 100). This indicates that a hedge fund defines itself in the negative. As Nigro and Romano point out, excluding some exceptions such as the definition in the Theusen report, the President’s Working Group Report or a regulation adopted in South Africa, hardly any system of law defines a hedge fund in a positive sense: ‘quasi nessun ordinamento giuridico fornisce una definizione di jus positum che si spinga sino a stabilire cosa sia, in positivo, un hedge fund. Altro è, infatti, l’usuale approccio seguito dai regulators, preferendosi piuttosto dire cosa un hedge fund non è, e cioè un fondo comune d’investimento, alla cui regolamentazione viene così ad essere sottratto’ (2013: 9-10).

As far as operational strategies are concerned, hedge funds are recognised as liquidity providers, in the search of positive absolute returns, position-taking in a wide range of markets, free to select various investment techniques, including short-selling, financial leverage and derivatives and finally characterised by a weak correlation to market trends. However, it should be recalled that the current working principles of hedge funds only remotely correspond to the first hedge fund invented by Alfred Winslow Jones in the Forties. He created what he considered to be a conservative investment scheme, using debt (i.e. leverage) to buy more shares and short selling (that is, selling securities he did not own in order to buy them subsequently, expecting a price decline) to prevent market risk.

The current array of financial strategies with which hedge funds are currently endowed is certainly wider and more sophisticated. Anyway, always according to the above-mentioned European Central Bank report, it is rather the proliferation of these investment vehicles which represents a problem in the trade-off between financial efficiency and financial system stability (2004: 12). Most important, hedge funds move in an unregulated universe and all attempts to regulate them have to some extent failed (Nigro and Romano 2013: 55-56). As the Theusen report points out, the regulation of typical hedge funds differs from typical investment associations. The first are ‘typically legally domiciled in offshore financial centres with limited regulation and supervision. No or few reporting and transparency requirements’ while the second are ‘legally domiciled in ordinary national jurisdictions. Regulated and under supervision. Reporting and transparency requirements’ (2005: 102).

As far as Italian fondi speculativi are concerned, they started to operate in 2001, thanks to the Decreto del Ministero del Tesoro n° 228 of May 24 1999. Italian fondi speculativi have as distinguishing features the fact that they have a minimum initial investment of not less than 500,000 Euro, without the possibility of splitting these shares, and of soliciting clients to invest in these shares. The fondi speculativi are managed by the SGR (Società di gestione del risparmio). Also, their risky nature must be clearly stated:

Art. 16
(Fondi speculativi)

1. Le SGR possono istituire fondi speculativi il cui patrimonio è investito in beni, anche diversi da quelli individuati nell’articolo 4, comma 2, in deroga alle norme prudenziali di contenimento e frazionamento dal rischio stabilite dalla Banca d’Italia, ai sensi dell’articolo 6, comma 1, lett. c) del Testo Unico.

2. Il numero dei soggetti che partecipano a ciascun fondo speculativo non può superare le duecento unità.

3. L’importo minimo della quota iniziale non può essere inferiore a 500.000 euro. Le quote dei fondi speculativi non possono essere frazionate in nessun caso.

4. Le quote dei fondi speculativi non possono essere oggetto di sollecitazione all’ investimento.

5. Il regolamento del fondo deve menzionare la rischiosità dell’investimento e la circostanza che esso avviene in deroga ai divieti e alle norme prudenziali di contenimento e frazionamento del rischio stabilite dalla Banca d’Italia.

6. Nel regolamento del fondo sono indicati i beni oggetto dell’investimento e le modalità di partecipazione con riferimento all’adesione dei partecipanti ed al rimborso delle quote.

7. La Banca d’Italia indica i casi in cui i fondi disciplinati dal presente articolo, in considerazione dei potenziali effetti sulla stabilità della società, possono essere istituiti o gestiti solo da SGR che abbiano come oggetto esclusivo l’istituzione o la gestione di tali fondi.

The analogies between hedge funds and fondi speculativi are many, but not so evident as to make the two concepts overlap. Since their creation, many changes have intervened in the organizational and operational activity of the Italian fondi speculativi such as, for instance, the creation in 2008 of side pockets and, more important, the abrogation of the maximum number of participants (once 200, as stated in previous citation of article 16 of the Decreto del Ministero del Tesoro). And many think that the assimilation between these two types of funds is only partly true. Annunziata, in the preface to the volume Gli hedge fund parlano italiano, states that although the two categories do not perfectly overlap, the fondi speculativi are often associated to hedge funds. This assimilation is only partly true as the category of the fondi speculativi lends itself to welcoming wider types of funds than those traditionally belonging to hedge funds:

Con l’avvento del Testo Unico delle disposizioni in materia di intermediazione finanziaria (D. Lgs. N. 58/1998), si è assistito ad una vera e propria trasformazione negli assetti della disciplina della gestione collettiva del risparmio. Il sistema italiano, tradizionalmente impermeabile allo sviluppo di forme “alternative” di gestione collettiva, ha visto l’introduzione di nuove tipologie di fondi comuni di investimento, tra cui rientrano i fondi cosiddetti “speculativi”. Sebbene le due categorie non coincidano perfettamente, i fondi speculativi vengono generalmente associati con gli hedge fund, di cui rappresenterebbero, per l’appunto, l’omologo: l’assimilazione è valida soltanto in parte in quanto i fondi speculativi si prestano, in realtà, ad “accogliere” tipologie più ampie e diversificate di quelle che tradizionalmente, in letteratura, vengono ricondotte nell’ambito della famiglia degli hedge funds (Manuli et al., 2003: VI).

Most importantly, Annunziata stresses the main characteristics that differentiate hedge funds from fondi speculativi, that is, the absence or presence or degree of regulation, hedge funds being essentially unregulated and the fondi speculativi regulated under the aegis of the Central Bank of Italy. The fondi speculativi are not an alien entity, totally out of control from the point of view of overall fairness and correctness:

La specialità del caso italiano, rispetto a quanto si rinviene in altri ordinamenti o sistemi, è rappresentata dal fatto che i fondi speculativi vengono sottoposti alla generale disciplina di vigilanza, prevista per le altre tipologie di gestione collettiva. Viene, cioè, ad essere superato uno dei tratti distintivi dell’universo degli hedge fund, quale tipicamente declamato, e cioè il fatto di essere per l’appunto, un universo tendenzialmente unregulated. Nel caso italiano, di contro, si assiste – a quanto consta per la prima volta nel pur variegato panorama internazionale – all’introduzione di una tipologia di fondo “alternativo” che si incardina perfettamente nel sistema generale dei soggetti e dei prodotti finanziari sottoposti a vigilanza pubblica, sulla base della disciplina di settore. Il fondo speculativo, per tale via, tende a “normalizzarsi”: cessa dunque di essere un’entità aliena, che sfugge alla disciplina generale dei controlli – sia prudenziali, sia di correttezza – per collocarsi a fianco e vicino alle altre “forme” di gestione collettiva del risparmio. In questo, tuttavia, il fondo speculativo mantiene un tratto distintivo, e cioè il fatto di non essere sottoposto ad alcuna limitazione o divieto in punto di politiche e attività di investimento. […] Il “mix” tra controlli e libertà di azione è dosato sapientemente, facendo così del caso italiano un unicum nel suo genere (Ibid.: VI-VII).

It would appear that the terms hedge funds and fondi speculativi conceal two different legal situations that the denomination alone is unable to clarify. From a linguistic point of view, and drawing inspiration from discourse analysis which contributes strongly to the analysis of ideological connotations of formulations and expressions in different cultures,[2] we can classify both expressions, fondi speculativi and fonds spéculatifs, as cases of hyperbole.[3]

The function of hyperbole is to focus attention on a particular aspect of a social phenomenon, thus bolstering the opinion that the choice of the adjective speculativo could be linked to the wish to emphasise the risk embedded in these vehicles (for a discussion on the meaning of speculativo see Section 3). At the same time, the expressions fondi speculativi and fonds spéculatifs may rightly be considered vague concepts as maintained by Dancette (2013: 460). The question is: how can we define the concept of speculazione and spéculation? This is why we have felt the necessity to deepen the analysis of this concept in specialized and general communication. Also, as we will see later on, the treatment in French and Italian written discourse adds to this ambiguity.

As far as the French denomination is concerned, fonds spéculatifs, according to the list of recommended terms, expressions and definitions of FranceTerme, is the official French translation published in the Journal officiel de la République française (pursuant to the Decree No 96-602 of 3 July 1996 concerning the improvement of French language) on 14 August 1998. This definition underlines the risk associated with these funds and the very high use of leverage:

Fonds d’investissement à haut risque portant principalement sur des produits à effet de levier particulièrement élevé, c’est-à-dire permettant, pour des mises limitées, d’opérer sur des montants beaucoup plus importants, mais avec des risques considérables.

However, it should also be noted that, always according to FranceTerme, the official French translation of hedger, namely opérateur en couverture, published in the Journal officiel de la République française on 22 September 2000, is closer to the semantics of hedge, that is ‘for hedging purposes’:

Opérateur intervenant sur le marché dans le but de couvrir, ou de compenser, totalement ou partiellement, un risque de variation d’un élément financier, ce risque provenant d’une fluctuation des cours des titres, des devises, des taux d’intérêt, ou des prix des matières premières.

IATE (InterActive Terminology for Europe), the EU multilingual termbase, also registers ‘fonds de gestion alternative’ as an alternative translation of hedge fund. As far as the Italian language is concerned, other proposals include ‘fondo di copertura’, ‘fondo comune speculativo’ and ‘fondo comune di investimento speculativo’. As we will see in this study, and in accordance with the general views of scholars, representatives of financial institutions and the financial community in general, language is crucial, as confirmed by the existence in the French financial press of different translations for hedge funds:

Laissant de côté le trop littéral “fonds de couverture”, leurs promoteurs préconisent plutôt le “fonds alternatif”, voire le “fonds d’arbitrage”, ou encore “gestion absolue”, Trois expressions fidèles, selon eux, à leurs approches et à leurs stratégies innovantes, comme la sélection et la vente à découvert de titres, les arbitrages de courbe de taux, d’obligations convertibles, de fusions-acquisitions, ou encore plus exotiques, les opérations à base d’obligations catastrophes ou de dérivés climatiques (Raulot: 2004).

As far as the operational side is concerned, French alternative managers have the use of Organismes de placement collectif en valeurs mobilières (OPCVM) à procédure allégée. However these investment vehicles are reserved for qualified investors and have a minimum subscription requirement of EUR 500.000. According to the paper Challenges arising from alternative investment management (Amenc et al, 2003: 117) published in the Banque de France Financial Stability Review:

In France, management strategies seeking to deliver absolute returns, uncorrelated with a benchmark index have developed only marginally. They are not widely distributed and account for limited amounts under management. Amid difficult market conditions, demand for these products has grown, mirroring the international development of hedge funds. Today, these management strategies are commonly referred to as alternative, although this term has no standard international definition and its substance varies significantly. In France, alternative investments primarily consist of alternative funds of funds, i.e. French funds invested in offshore funds or French funds with a specialist bias, such as futures or options). It is therefore necessary to establish a precise legal framework which can be applied to an activity that France has tolerated for almost a decade.

This means that alternative management activity in France has had to have recourse to off-shore funds in order to be able to use less regulated strategies and lighter structures, developing at the same time an expertise in selecting hedge funds constituted under foreign law.

In our opinion, both definitions, the official denomination provided by the Italian legislator and that provided in the Journal officiel de la République française, are misleading and imbued of ideology. Both terms risk giving rise to dangerous shifts in meaning, a semantic ambiguity linked to the discordance between linguistic term and conceptual meaning. As we have already seen, the Italian legislation has created its own legal entity, conceptually similar and yet not totally overlapping, with American hedge funds. As we will argue in Section 2, the choice of the adjective spéculatifs, as well as the choice of speculativi, bears a heavy responsibility in emphasizing one of the components of the semantic spectrum of these products and thus giving a negative connotation also to such neutral words as fonds and fondi, albeit for different reasons.

2. The incongruency between general and specialist use of the term ‘spéculation’, ‘speculazione’

The Italian writer Camilleri, author of the series dedicated to the police commissioner Montalbano, during a guest appearance on the Italian television programme Che tempo che fa, on March 30 2014, was asked to list three words that were too often pronounced or were unpronounceable to the extent that they were never to be pronounced. Camilleri cited ‘spending review’, as this Anglicism is useful to hide the reality of things, and ‘speculation’. When he was asked if he meant the speculation of thinking, Camilleri replied that he meant financial and real estate speculation. Then he was asked to list some unavoidable words. Camilleri mentioned ‘honesty’, ‘fantasy’, ‘levity’ and again ‘speculation’. But added that it should be understood in the original meaning of the word, that is ‘cogitation’, ‘thought’. A ‘speculative mind’, Camilleri added, is ‘a mind capable of judging facts’. The anecdote is revealing as speculation associated with fraudsters, sharks and ill-gotten gains, especially to the detriment of other people, is the starting point of our research.

As the following graph shows, taken from the Corpus français,[4] a database composed of 37 millions sentences, thus approximately 700 millions words, created by the University of Leipzig, spéculation is followed by predicate adjectives like effrénée, forte’, by attributive adjectives such as boursière, immobilière, financière and preceded by the verb freiner. The graph in Figure 1 shows the semantic relations between the keyword spéculation and the words that co-occur very frequently in the same sentences.

Figure 1: the semantic relations for the word ‘spéculation’ taken from the Corpus français of the University of Leipzig

For the purposes of this study we have constructed a corpus made up of ten sub-corpora, the first eight electronic, the last two constructed manually. The first two electronic sub-corpora (French and Italian, referred to here as “speculation sub-corpora”) focused on the operations of hedge funds and were constructed with the same keywords translated into the respective languages but without including the terms speculazione and spéculation as seeds. It has to be remembered that the use of seeds for the construction of online corpora necessarily involves the selection of terms considered distinctive of the topic that the corpus is meant to represent, i.e. to use ‘internal criteria’ following Sinclair’s terminology.[5] Excluding the terms that we are specifically studying, if anything, avoids the pitfall of constructing a corpus biased in favour of these terms, risking circularity (e.g. over-representation of lexical patterns surrounding the seed terms);[6] the four subsequent sub-corpora were constructed with articles from Italian and French financial newspapers (namely Il Sole 24 Ore, Milano Finanza, Les Echos, La Tribune) (referred to here as “financial press sub-corpora”); two sub-corpora (French, Italian, referred to here as “hedge funds sub-corpora”) were constructed using the same seeds translated in the respective language (hedge, hedge funds, hedging, fondi, società, thus avoiding terms such as speculazione, fondi speculativi, spéculation, fonds spéculatifs) and created ad hoc to evaluate the linguistic behaviour of the French and Italian terms fondi speculativi and fonds spéculatifs in written discourse;[7] the last two ad hoc sub-corpora (Italian and French) focused on the terms fondi alternativi and fonds alternatifs (referred to here as “alternative funds sub-corpora”) were constructed manually with articles from the Italian Il Sole 24 Ore and Milano Finanza and the French La Tribune and Les Echos in the period from 2011 (the year in which the Directive on Alternative Investment Fund Managers came into force) to 2015.[8] The search was actually carried out on fondi alternativi and fonds alternatifs as more frequent than the denominations fondi di investimento alternativi and fonds d’investissement alternatifs contained in the Directive 2011/61 on Alternative Investment Fund Managers.

The exploration of our specialised French sub-corpora focused on the operations of hedge funds (see Figure 2) confirms the same essentially negative connotation surrounding this term: the verbs that are more frequently associated with the 218 occurrences of spéculation are: ‘limiter’ (30 occurrences, often associated with, among others, ‘activités spéculatives, the ‘bulles spéculatives’” etc.), ‘contrer’ (14), ‘interdire’ (74 occurrences, often associated with, among others, ‘ventes à découvert’ ). However, it is important to point out that out of the 97 occurrences of the verb ‘limiter’, 60 of them are associated with ‘le risque’ or ‘les risques’ which represent, as we have seen in Section 1, one of the characteristics of hedge funds.

Figure 2: concordance lines for the term ‘spéculation’

The specialised Italian sub-corpus focused on the operations of hedge funds, for its part, clearly shows the difference between speculazione in the negative sense and speculazione in its technical sense associated with the notions of arbitraging[9] or hedging, as in examples 1, 2, 3, 4, 9, 10, 13, 38 and 40 in Figure 3, which are operational strategies typically adopted by hedge funds.

Figure 3: concordance lines for the term ‘speculazione’

If on the one hand, then, the social sanction prevails, as Figure 1 shows, on the other hand, in the financial field there is a general acceptance of a useful, or better still, beneficial, and not negatively connotated on the axiological scale, sense of spéculation and speculazione. Far from justifying largely proscribed social behaviour, it is crucial to grasp the behavioural codes of the financial universe and to understand its governing laws, avoiding the application of ethical codes and in particular, as Luigi Einaudi, President of the Italian Republic from 1948 to 1955, wrote, the disparaging sense inherent in common usage of the term: ‘senso spregiativo accolto nel discorrere volgare’ (1956: 107). The terms speculazione and spéculation are closely and frequently associated with hedge funds and with their operational activities and strategies.

On the occasion of the harsh economic crises that have led recently to slumps – the Tequila crisis and the devaluation of the Mexican currency in 1995, the collapse of Long Term Capital Management in 2009, the sub-primes crisis from 2007 to 2009 to name just a few – hedge funds have been accused by the investment community of exacerbating tensions on the financial markets. However, according to some, hedge funds have been the scapegoat of the financial universe, and precise responsibilities have never been totally acknowledged, while grey areas still persist. The Italian social sciences encyclopaedia Treccani offers a pertinent and in-depth illustration of the semantic constellation of the entry speculazione where ambiguity, semantic charge, and the presence of a positive and negative connotation clearly appear.[10]

On the political side, the already cited report of the French Assemblée Nationale illustrates the shared consensus of the people heard by the Commission which proves that spéculation is unavoidable, but yet useful. The report also arouses perplexities concerning the lack of transparency, the danger that spéculation may lead to mimetic behaviour and bring about unrestrained dynamics (2010: 23-31). As far as short-selling is concerned, for example, the text emphasizes the illicit usage of an instrument which is otherwise indispensable (112). Here are some of the most significant comments on the concept of spéculation (23-24) by scholars, representatives of financial institutions and the financial community, taken from the cited report of the French Assemblée Nationale (2010). As can be seen from the following quotations, spéculation (1) provides a balance in financial markets, (2) is an integral part of financial markets, (3) means anticipating price movements, (4) is necessary to future markets which “work” only thanks to the spéculateurs, and (5) provides liquidity to the market:

1.   ‘En temps normal, la spéculation joue un rôle équilibrant: des acteurs financiers mieux informés que d’autres, découvrant que les prix de certains produits ne correspondent pas à leur valeur réelle, jouent sur le retour des prix à cette valeur’ (Michel Aglietta, Consultant for the Centre d’études prospectives et d’informations internationales (CEPII));

2.   ‘Sans spéculateurs, il n’y aurait pas de marché. Pour qu’une transaction se fasse, il faut un acheteur et un vendeur, chacun considérant qu’elle est dans son intérêt.[…] La spéculation est consubstantielle au marché’ (Jean-Pierre Jouyet, Chairman of the French financial markets regulator);

3.   ‘[…] spéculer, c’est essayer d’anticiper l’avenir: un épargnant qui achète des actions ne le fait pas dans l’idée qu’elles vont baisser. Tout le monde est donc peu ou prou spéculateur, financièrement ou intellectuellement’ (Bertrand Jacquillat, Professor at the Institut d’études politiques in Paris ; Chairman and co-founder of Associés en Finance);

4.   ‘[…] il est très difficile de tracer une frontière entre les opérations de ‘trading’ nécessaires et celles qui sont purement spéculatives. Les marchés à terme de biens ne fonctionnent que grâce aux spéculateurs: les opérateurs professionnels s’orientent tous dans le même sens au même moment. […] pour qu’il y ait marché, il faut pouvoir trouver des contreparties, en l’occurrence des ‘traders’ ou des “hedge funds”‘ (Patrick Artus, Chief Economist of Natixis);[11]

5.   ‘La prise de positions ouvertes est nécessaire à la liquidité des marchés’ (Christian Noyer, Governor of Banque de France).

On the basis of the results of our ad hoc financial press sub-corpora that were constructed for this study (from Il Sole 24 Ore, Milano Finanza, Les Echos, La Tribune),^[12] spéculation bears a largely negative connotation but judgement is softer when referring to its effects on financial markets: it helps, inter alia, to stabilize and support prices, carrying out an adjustment action on financial markets, and provides liquidity to the market. We may consider some examples from our French financial press sub-corpora. Spéculation is elsewhere defined as ‘équilibrante’, ‘stabilisante’, and also ‘bonne’, that is, an operation which bets on the reduction of default risk. The so-called courant monétariste praises spéculation as ‘équilibrante’, a notion which is resumed in the following statement ‘la spéculation lisse les courbes de prix et leurs fluctuations’.

These examples give support to the previous analysis by Treccani encyplopedia and by the report of the French Assemblée Nationale. What, actually, is a speculator? According to the glossary of the Commodity Futures Trading Commission, a speculator is a ‘trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements’. The Barrons’ Dictionary of Banking Terms enriches and expands the meaning of speculative with regard to securities, i.e.:

1)Securities rated as sub-investment paper by an investment advisory service, and thus an unsuitable investment for a bank investment portfolio or trust department. Speculative securities are rated by Standard & Poor’s as grade BB or lower, and by Moody’s Investors Service as Ba or lower.

2)Investment security subject to loss of interest or principal, or both. Banking regulators have discouraged investing in certain types of derivative mortgage backed securities, unless these are used as a hedging device of limit interest rate risk […]. (Fitch 1993: 573)

The previous definition of speculator is crucial for our research as it contains the term ‘hedge’. A hedger, according to CFTC glossary, is:

A trader who enters into positions in a futures market opposite to positions held in the cash market to minimize the risk of financial loss from an adverse price change; or who purchases or sells futures as a temporary substitute for a cash transaction that will occur later.

As we have seen, the exploration of ad hoc financial press sub-corpora enriches the semantic charge surrounding the term spéculation and speculazione, giving also major support to already known aspects. At this point, it is important to reinforce the thin and often elusive line between the negative connotation in public opinion (which, in our opinion, ends up influencing the adjectives speculativi and spéculatifs and consequently the nouns fondi and fonds) and the operational activities which distinguish hedge funds from other forms of investment funds.

A revealing example is offered by an interest rate swap with hedging purposes, i.e. with the purpose of minimizing the risk of rate fluctuations, found in the Italian Il Sole 24 Ore financial press sub-corpus. According to former article 1418 of the Italian civil code, this contract may be considered ‘void’ in the absence of a real cause, thus turning it into a speculative contract. Research into the adjective speculativo also confirms that the speculative component is defined as short-term or very short-term oriented, while all those activities which are not speculative are investment oriented. What is speculativo is mostly the misuse of these financial products, in order, for example, to cash in upfront liquidity. The exploration of our French and Italian financial press sub-corpora confirms that the meaning of speculativo and spéculatif defines itself in the negative, that is, an activity which is not for hedging purposes.^[13] In this sense, the definition coincides with the above-mentioned one provided by the American Commodity Futures Trading Commission.

Derivatives products, for example, according to our French sub-corpus, become spéculatifs and pathological once they go beyond a nascent and physiological condition. In conclusion, a derivative contract is signed for speculative purposes when it is not for hedging purposes, that is, not for protecting from risk, rather to assume that same risk.

3. Putting the terms ‘hedge funds’, ‘fonds spéculatifs’ and ‘fondi speculativi’ to the test of corpora

The Italian adjective speculativi in connection with fondi is considered improper by the financial literature for several reasons that we are going to list briefly. According to Nigro and Romano, hedge funds, from an operational viewpoint, on the whole manage to avoid from restrictions and regulations and maybe this is the reason why the Italian legislator has chosen the adjective speculativo to stress their high degree of risk:

Probabilmente è questo l’elemento capace di spiegare il perché un fenomeno finanziario la cui denominazione sembrerebbe evocare l’impiego di strategie atte a dar copertura agli investimenti (“hedging”), abbia invece nel tempo acquisito la fama di gestione finanziaria di tipo “speculativo” e, quindi, altamente rischiosa. Il che è soprattutto vero con riferimento all’Europa continentale, ove il fenomeno viene appunto così identificato dal legislatore italiano (fondi speculativi) e da quello Tedesco (Sondervermögen mit zusätzlichen Risiken), i quali, in un certo senso, nel momento in cui “codificano” questa forma di investimento, la connotano nel senso di un suo superiore grado di rischiosità […] (2013: 13).

The same authors express some doubts as to the use of the adjective speculativo, unless its meaning is clearly stated: ‘A parere di chi scrive, discutibile appare, invece, l’operazione di qualificare le gestioni di tipo hedge tramite l’impiego dell’aggettivo speculativo, salvo che di quell’aggettivo si chiariscano significato e portata’ (Ibid: 14). Nichele and Stefanini agree that the term fondi speculativi adopted by the Italian legislator may reveal itself misleading because the term itself very probably does not allow an understanding of their true nature:

[...] la traduzione fatta propria dal legislatore italiano del termine anglosassone “hedge fund” non pone nella corretta dimensione questa nuova tipologia di fondi, ma getta su di essi un’immagine negativa che ne enfatizza la ricerca del rendimento facendo passare in secondo piano la sofisticata gestione del rischio che invece li caratterizza (2002: 155).

However, and in this Nichele and Stefanini are at odds with Nigro and Romano, they add that the choice of the adjective speculativo is due to the fact that the Italian legislator did not force them to respect any investment ban:

[the choice of the adjective speculativo] è indicativa del fatto che [the Italian legislator] non li ha vincolati al rispetto di alcun divieto in materia di investimenti, normalmente invece previsti per altre tipologie di fondi. L’aggettivo “speculativi” va quindi inquadrato in tali termini e non necessariamente associato alla loro rischiosità, che, per molti essi, risulta assai inferiore a quella di tanti fondi comuni di investimento di tipo tradizionale” (2002: 5).

In order to analyse these terms in written discourse in association with hedge funds, we will explore two hedge funds sub-corpora (French, Italian) built using the same seeds translated in the respective languages (hedge, hedge funds, hedging, fondi, società), thus avoiding terms such as speculazione, fondi speculativi, spéculation, fonds spéculatifs.[14] For our part, the terms fondi speculativi and fonds spéculatifs increase the ethical dimension of these investment vehicles but only in terms of evaluation, as the negatively connotated semantic prosody of speculazione and spéculation has shown, thus authorising distorted inferences. Moreover, the textual dimension, as we can see in Figures 4 and 5, constitutes a supplementary layer of complexity. The Italian linguistic context proves to be highly variegated, and in any case more so than the French one.

Figure 4: concordance lines for ‘specula*’

We will start by making a few clarifications. The terms fondi and fonds do not allow inferences to be drawn from them. On the contrary, it is the association with the predicates speculativi and spéculatifs that leads to inferences being drawn. The predicate gives information which is not contained in the subject. In the case of compound terms such as fondi speculativi, the meaning is motivated by the respective meanings of the two components. The conceptual component speculativo is incorporated in the meaning of the compound term, which is not arbitrary, unless otherwise stated. In both cases, fondi speculativi and fonds spéculatifs emphasize one of the components of the semantic spectrum of these particular vehicles, with the concept of speculazione/spéculation spreading its negative connotations to these adjectives. It is also important to recall, as we have seen in Section 2, that the use of the term fondi speculativi is improper because what is speculativo is the strategy of these funds, a strategy that can be carried out for hedging purposes or for speculative purposes, or the misuse of these vehicles, as our sub-corpora have shown. Having said this, the use in written discourse of these terms shows another problematic aspect, which risks hampering the comprehension of the conceptual difference between an American hedge fund and the fondi speculativi under Italian law. We have summarized below some of the most meaningful examples of association between fondi speculativi and hedge (52 occurrences out of 215 occurrences of fondi speculativi) that appear in Figure 4. They are as follow:

(example 2) […] fondi speculativi (in inglese hedge funds)
(example 3) […] fondi speculativi (o hedge funds)
(example 14) Gli hedge funds (in italiano fondi speculativi)
(example 20) Gli hedge funds sono fondi speculativi […]
(example 24) Un fondo speculativo (in inglese hedge fund) detto anche fondo hedge…
(example 26) […] fondi hedge (o fondi speculativi)

Let us focus on examples 2, 3, 14, 24, 26: all of them stipulate the full equivalence, from a conceptual point of view, between the two terms, or better yet they present themselves as equivalents. The same evaluations which apply to hedge funds are applied to fondi speculativi, thus creating a sort of illusion of equivalence. Moreover, the adjective speculativi and spéculatifs negatively influence the nouns fondi and fonds. Adopting the term fondi speculativi for hedge funds, there is the risk that the reference is to American hedge funds and not to fondi speculativi under Italian law, bearing in mind the conceptual differences that we have pointed out in Section 1. On the other hand, example 20, ‘Gli hedge funds sono fondi speculativi’, simply characterises itself as encyclopaedic information, absolutely sharable, a realization or a concise characterization of these investment vehicles. As far as the term fonds speculatifs in French written discourse is concerned, the examples in Figure 5 show a mainly negative connotation surrounding this term.

Figure 5: concordance lines for ‘spécula*’

According to Figure 5, the fonds spéculatifs invest only in the short term (examples 129, 141, 144), are located in tax havens (example 134), are related to the collapse of the Lehman Brothers (examples 131, 150), are ‘endettés jusqu’au cou’ (example 142), profit from market anomalies (examples 133, 148) and are accused of illegal behaviour (example 147). As far as the linguistic context is concerned, the French one is less variegated than the Italian one, as the preference for the recommended term fonds spéculatifs shows.

4. Assessing the impact of the new concept of ‘alternative investment funds’

In this section we aim to analyse and assess the impact of the Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 from a semantic and linguistic perspective. In order to do so, it is important to recall here the recitals 1 to 3 which recapitulate the prerequisites (‘recent financial difficulties’), the aim (‘establishing common requirements […] in order to provide a coherent approach to the related risks and their impact on investors and markets in the Union’) and the target audience (‘Managers of alternative investment funds’) of this Directive.[15]

The Directive on Alternative Funds Managers clearly states that its objectives are manifold, including the creation of a harmonized regulatory framework thus ensuring disclosure and investor protection. From a linguistic point of view, the expression alternative (investment) funds, like the expression fondi speculativi, is a vague one (what does alternative mean?), but less imprecise. Unlike fondi speculativi, and in the absence of an unequivocal definition of hedge funds, the Directive comes up with a definition in the negative: alternative investment funds are ‘all types of funds that are not covered by Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to the undertakings for collective investment in transferable securities (UCITS)’.

From a linguistic point of view, the expression alternative investment funds acts here as a hypernym as it encompasses a variety of funds: real estate and infrastructure funds, private equity funds, hedge funds. Also, it should be noted that there are no occurrences of the term hedge funds in the text of the AIFM Directive but only in the recitals to the same Directive. This is not surprising. On the contrary, this absence demonstrates once again, in our view, the wish to reassure investors. Moreover, at this stage of our analysis, the fact that the French and Italian translation of hedge funds contained in the recitals is respectively fondi speculativi and fonds spéculatifs proves to be irrelevant and would only demonstrate the passive linguistic attitude of the European legislator. The expression fondi speculativi has been classified as hyperbole as it focuses on the risky aspects embedded in these funds. On the contrary, we think that the new category of alternative investment funds more closely reflects a euphemistic and reassuring expression. The prosody surrounding these new financial vehicles has also changed: unlike fondi speculativi or fonds spéculatifs, fondi alternativi or fonds alternatifs are no longer accused of illegal behaviour.

The two Italian and French “alternative funds sub-corpora” were constructed manually with articles from the Italian Il Sole 24 Ore and Milano Finanza and the French La Tribune and Les Echos in the period from 2011 (the year in which the Directive on Alternative Investment Fund Managers came into force) to 2015. These sub-corpora highlight specific positive aspects (see Figures 6 and 7).[16]

The Italian sub-corpus (Figure 6) shows that these new financial vehicles will bring about a new homogeneity in the hedge funds industry (example 11), they gain in popularity, prompted by the search for higher yields by investors (example 16), they bring in larger and larger amounts (examples 19, 21, 23, 24, 25, 27), they are affected by specific constraints, which means that they are less risky than previous hedge funds (examples 13, 14, 15, 20, 26, 29, 30, 31, 31, 33, 34, 35), they represent an era after investment in real estate (example 18).

Figure 6: concordance lines for the term ‘fondi alternativi’

The French sub-corpus (Figure 7), on its part, shows that this sector is a monitored and regulated one (examples 30, 32, 34, 35, 41), that the new Directive provides a better framework for these funds (examples 16, 20, 21, 23) and more protection for the investors (example 27). Also they are more transparent (example 30): looking at the collocates with fonds alternatifs, the top fifty, in order of frequency, refer to ‘gestionnaires’, ‘Directive’, ‘gérants’, ‘AIFM’, ‘Ucits’ and ‘transparence’.

Figure 7: concordance lines for the term ‘fonds alternatifs’

So, what are the reasons for this regaining of popularity? We think that the reasons are specifically attributable to the new regulatory policy which has been implemented by the AIFM Directive, which has also prompted a change in the terminological denomination of these investment vehicles. The expressions fondi alternativi and fonds alternatifs, reassuring and vague terms which define themselves in the negative, specifically reflects this turnaround. Both the French and Italian financial press sub-corpora show this reassuring trend in varying degrees. The new Directive seems to have ushered in a new era for the alternative investment industry but some difficulties remain.

5. Discussion of results and conclusions

The main innovation of our study is its specific focus on the ideological connotations surrounding the choice of the adjectives speculativi and spéculatifs and of the new denominations fondi alternativi and fonds alternatifs in the Italian and French financial press on the basis of an analysis carried out on comparable specialised sub-corpora. The findings of this study show that there is still a certain degree of confusion surrounding the conceptual differences and the inappropriateness of the choice of the adjective speculativi and spéculatifs, a choice which risks conveying only part of the complex concept represented by hedge funds and also spreading a negative connotation to such neutral nouns as fondi and fonds. Moreover, it shows that a change in regulatory policy has prompted a change in denomination: from hedge funds through fondi speculativi/fonds spéculatifs to fondi alternativi/fonds alternatifs. Semantic prosody has changed too: if the aura of meaning surrounding fondi speculativi is substantially negative, as the words that typically co-occur has shown, the aura of meaning surrounding fondi alternativi is a reassuring one.

Treatment in written discourse does not help, in particular from an intralinguistic and an interlinguistic perspective between English and Italian terms. Hence there is a risk that the frequent juxtaposition between fondi speculativi and hedge funds smoothes the conceptual differences between the two terms, thus creating the presumption of equivalence and allowing erroneous inferences.

However, we would like to mention that the findings of this study should be interpreted with caution. Future studies could also refine the methodology used in this study to provide a better insight into the association between linguistic terms and semantic values, e.g. building bigger sub-corpora to support results.

As a conclusion, we are pleased to quote again Luigi Einaudi (both quotations are translated in footnote) when referring to the ‘attività’ on Commodities Exchanges, activities referred to as mainly speculative in the negative sense, that is, using a strongly connotated adjective in Italian common usage:

Se si usasse da tutti la parola ‘speculazione’ nel senso di ‘operazione fatta da chi, guardando al di là della punta del suo naso, si preoccupa di quel che può accadere nell’avvenire’, non vi sarebbe nessun inconveniente nell’usarla. Siccome però l’uso comune è legato a concetti quali ‘filibustiere’ – ‘brigante in guanti gialli’ – ‘frequentatore di locali malfamati’ e simili, parrebbe opportuno astenersene nei documenti legislativi (1956: 107).[17]

And again:

fa d’uopo riportare la parola speculazione al suo significato genuino; che è quello di chi guarda all’avvenire, di chi tenta, a suo rischio, di scrutare (speculare) l’orizzonte lontano ed indovinare i tempi che verranno. Purtroppo, gli ‘speculatori’ veri sono rarissimi (1973: 347).[18]

Mindful of Luigi Einaudi’s remarks, and in the face of the multitude of definitions and equivalents that reflects the lack of conceptual clarity, as we have seen in Section 1, the translational proposal ‘Performance funds’ (that is funds which generate absolute performance, de-correlated from market trends and whose management fees are instead correlated to the performance of the fund) made by financial guru Soros should not be ignored:

Hedge funds engage in a variety of investment activities. They cater to sophisticated investors and are not subject to regulations that apply to mutual funds geared toward the general public. Fund managers are compensated on the basis of performance rather than as a fixed percentage of assets. ‘Performance funds’ would be a more accurate description (Vaughan 2003).

Soros’ proposed translation and the considerations on the inappropriateness of the adjective speculativo seen in this presentation when referring to hedge funds give us an insight into the degree of awareness of market players towards linguistic, conceptual and translational aspects.

However, if on the one hand the different terms proposed show how hard it is to find a common definition, on the other, as the following warning referred to France seems to suggest, the suspicion that hedge funds still generate, and the lack of a unanimously accepted translation and of a respectable status can hamper the success of these investment instruments. And this, even though the expression fonds spéculatifs reflects only one of the features of hedge funds, i.e. the use of high levels of leverage:

Le commerce des hedge funds dans l’Hexagone est bridé par la méfiance qu’ils inspirent encore aux investisseurs et aux autorités de tutelle tricolores. Peut-être leur manque-t-il, pour accéder en France à un statut parfaitement respectable, une traduction unanimement acceptée du vocable anglophone. Aucune version n’étant à ce jour parvenue à s’imposer. Cinq ans après la faillite de LTCM, il reste difficile de convaincre ses clients de souscrire à des “fonds spéculatifs”, même si l’expression reflète un des aspects du hedge fund, à savoir le recours à l’endettement en vue d’accroître l’effet de levier et de doper ses performances (Raulot: 2004).

This highlights once again the primary responsibility of language and translation in transmitting concepts adequately and the danger of inducing erroneous inferences through semantic discrepancy.

About the author(s)

Danio Maldussi is an Associate Professor in Specialised Translation from French into Italian at the Department of Interpreting and Translation, University of Bologna, Forlì Campus, Italy. He is a technical translator specialised in financial and institutional translation and associated member of AITI (Associazione italiana traduttori e interpreti). His last publications are:
(2014) “'Haircut': étude comparative anglais/français/italien d’un glissement sémantique dans la terminologie de la crise financière”, MediAzioni 16, http://mediazioni.sitlec.unibo.it, ISSN 1974-4382.
(2013) "Le spread dans ses dimensions conceptuelle, culturelle et cognitive : une approche termontographique", in Lexique Lexiques, Théories, méthodes et perspectives en lexicologie, lexicographie, terminologie et phraséologie, Pierluigi Ligas and Giovanni Tallarico (eds), Verona, QuiEdit: 97-118.
(2011) “Le procédé de l’emprunt dans le domaine juridique: la quête d’un nouveau souffle”, in Traduire les savoirs, Danielle Londei, Matilde Callari Galli (eds), Berne, Lang: 339-358.
(2010) “Terminologia sistematizzata e terminologia spontanea in ambito finanziario: un rapporto conflittuale”, Publifarum (http://publifarum.farum.it/show_issue.php?iss_id=8);
(2008) "La terminologia alla prova della traduzione specializzata", published by Bononia University Press. His other research areas include: Terminology and Translation, Legal and Accounting Translation and textual aspects of Translation.

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