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To: CIMA who wrote (20498)	10/3/1998 12:23:00 AM
From: Ron Everest	Respond to of 116753

4000 Hedge funds controlling $400 billion is a lot of cash. Thursday October 1, 6:24 pm Eastern Time Explanation of Hedge Funds By The Associated Press Hedge funds, now under close scrutiny because of the $3.6 billion private bailout last week of Long-Term Capital Management LP, are investment funds that make sophisticated financial bets with money from wealthy investors. Federal securities laws limit participation in each fund to 500 investors. Individuals must have incomes of at least $200,000 in each of the past two years ($300,000 for couples) or a net worth of at least $1 million. Hedge funds often use the money to speculate on relative differences in interest rates among securities. They employ sophisticated computer modeling and derivatives -- often-complex financial instruments whose value is derived from an underlying security, commodity or asset -- in hope of producing a profit, no matter which direction stock prices or interest rates move as a whole. In the case of Long-Term Capital, the models failed to account for the sudden collapse of the Russian ruble in late August or the dramatic intensification of the global financial crisis, which has widened the spread between interest paid on U.S. Treasury securities and other less-safe securities. Experts estimate there are as many as 4,000 domestic and offshore hedge funds controlling as much as $400 billion in investor equity. They are not subject to the same kind of strict disclosure and oversight rules as mutual funds because investors presumably have the resources to look after themselves. The collapse of a major hedge fund could damage the banking system and the economy. The banks and brokerage firms lending to the fund would face huge losses, and unwinding of the fund's positions could spur panic selling and losses for other investors. biz.yahoo.com