in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" positions (borrowing money to speculate on undervalued stocks ; see hedging ; speculation ). Aggressive hedge funds work with highly leveraged securities, often purchased with less than 5% of actual investor capital, with banks covering the balance. Hedge funds can produce extremely high returns on investment; participation is limited to wealthy investors and large institutions. Macro hedge funds speculate in currencies of various countries; financial analysts and government officials blamed such funds, including George Soros 's Quantum fund, for disrupting the economies of Asian and Latin American countries in 1998. Funds are classified as U.S. or offshore; U.S. hedge funds are private investment partnerships that generally invest in traded securities. Offshore hedge funds (normally not open to U.S. investors) are mutual fund companies. Hedge funds came to public view in 1998 when Long-Term Capital Management (a U.S. fund) nearly collapsed, requiring a $3.5 billion bailout organized by the Federal Reserve Bank of New York and paid by private banks. The bailout led to a number of U.S. and international investigations into hedge funds and calls for greater regulation and scrutiny.

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