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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Bosco who wrote (6842)	10/1/1998 11:33:00 AM
From: dougjn	Respond to of 9980

The term hedge fund has evolved to mean any private fund which is almost (or if outside the U.S. perhaps entirely) unregulated, and also has a broad or unlimited private charter with its investors, allowing huge discretion in the types of investments made. Unlike U.S. mutual funds, they are not regulated by the SEC. They escape SEC regulation that by only allowing sufficiently rich people to invest in them. The typically use leverage, i.e. borrowed money. The typically don't just or primarily invest long in stocks. They may short stocks. The more go go variety invest heavily in derivatives, such as currency or market futures. These instruments allow huge amounts of leverage. The now widely famous, and failing, Long Term Capital Management fund developed truly awesome amounts of leverage....on the theory that they had quant. computer models for offsetting, (hedged) trades that were foolproof. The Nobel laureates who had helped build the models said so. The models did tend to work well in up or down markets alike...unless some really unusual things happened. Such as Russia flat out refusing to pay on its foreign debt. Then CRASH, with huge leverage. Had the Fed not stepped in and forced a bunch of brokerages and banks to pony up and save themselves from cascading wipeouts of all the money they had lent. As a result of fire sales of positions in all sorts of developing country markets, etc. (How much they will end up having to eat is anyone's guess. The aggregate 3.5 bill put up is just a tide over sum. We'll see.) Doug