Chapter 2
How Hedge Funds Operate
This chapter explores how hedge funds operate and the role that these investment vehicles play in keeping markets moving around the globe.
It is important to understand how to start a hedge fund, who is investing in the vehicles, and who provides services to the industry. It is here that you will read about “the world's greatest investor” and how he came to get this title.
The sport of blaming hedge funds for financial meltdowns was never more apparent than in the summer and early fall of 2008 when volatility rocked the world's markets and the walls seemed to be truly tumbling down. The near collapse of the global financial system was splashed across newspapers around the globe, and hedge funds were both a victim and cause of the global disaster. Blaming hedge funds was not new, reporters and editors had found a scapegoat for any financial disasters that occurred since the near collapse of Long-Term Capital Management (LTCM) in 1998. Hedge funds are blamed for all that ails the markets—regardless of if it is true or not; if something bad happens, it's the hedge fund industry's fault. The table was set for the blaming of hedge funds for the recent credit crisis but the press needed to put a name and face on the destruction and in turn moved away from hedge funds to focus on Wall Street chief executives, the head of retail banks, and of course the mortgage people. It had looked for awhile as though hedge funds had dodged this bullet; however, that ...
