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In recent years, hedge funds have become an increasingly prominent part of the lexicon of investing. The strategies and performance of hedge fund managers have gained wide attention, particularly last year when the collapse of Long Term Credit Management (LTCM) almost caused a global financial meltdown. Since that event, hedge funds have generally been portrayed by the media as extremely speculative, high-risk and mysterious investment vehicles. They have also been accused of practically sabotaging the world financial system. But are hedge funds the real villain and should they be ignored by all but the most speculative of investors?To begin with, let us first look at what a hedge fund is. The first hedge fund started trading in New York on 1 January, 1949 and was managed by Alfred Jones. The fund took both short and long positions in the same portfolio with the objective of increasing returns while simultaneously lowering risk by reducing the overall net exposure to the market.

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