Washington Post – Wall Street chroniclers one day could look back at the early 21st century and easily dub it the Era of the Hedge Fund. The question is whether it will be remembered as an age ofreason or irrational exuberance.
Hedge funds hold unparalleled sway over the financial markets, as confirmed by the recent unraveling of $20 billion in Bear Stearns funds. Portrayed as the new masters of the universe by author Tom Wolfe, hedge-fund managers are responsible for more than a third of stock trades and control more than $2 trillion worth of assets, according to industry researchers. Each of the top hedge-fund managers earned more than $1 billion in 2006 alone.
But like the Wizard of Oz, these funds hide behind a cloak of mystery as they pull the levers that make Wall Street go. “To a great degree they’re unregulated and hardly understood or not understood at all,” said James Grant, publisher of Grant’s Interest Rate Observer.
Understanding the impact of this secretive world gained urgency in Washington after the crisis at the two Bear Stearns hedge funds sent the Dow Jones industrial average down 279 points and prompted the Securities and Exchange Commission to begin an informal investigation last week.
