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Getting Started in Hedge Funds: From Launching a Hedge Fund to New Regulation, the Use of Leverage, and Top Manager Profiles, Third Edition by Daniel A. Strachman

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Chapter 1

Hedge Fund Basics

It seems to me that the only time the press mentions hedge funds is when one blows up or some sort of crisis hits one of the world's many markets or there is a fraud and investors are robbed or taken to the cleaners. This has been a constant by the media since the summer of 1998.

Step back if you will to the summer of 1998, when Charlton Heston took over the presidency of the National Rifle Association, Compaq Computer bought Digital Equipment Corporation for nine billion dollars, the largest deal in the industry at the time, and the United States embassies in Tanzania and Kenya were bombed, killing 224 people and injuring over 4,500. It was also during this time that a currency crisis in Asia spread to Russia, then crept into Europe, and finally hit the shores of the United States in mid-July and early August.

Many who follow the markets assumed that things were bad and were going to stay that way for a very long time. And of course the first people who were looked at when the volatility hit and markets dropped were members of the hedge fund community. Although no one knew for sure what was going on and who and how much was lost, one thing was clear: Many of the most famous hedge funds of the time were in serious trouble.

After weeks of speculation and rumors, the market finally heard the truth: The world's “greatest investor” and his colleagues had made a mistake of significant proportions.

At a little before 4 P.M. Eastern Standard Time (EST) on ...

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