From Long Term Capital Management to Amaranth, dramatic collapses of large hedge funds have occurred throughout the history of hedge funds. In general, hedge fund blow ups result from a similar series of events and financial elements.
1. Improbable Market Events
First, there is normally an improbable market event that effects the specific central investment or trading strategy of the hedge fund. For example, the 1997 Asian Financial Crisis contributed to the failure of Long Term Capital as widening spreads caused relative value trades to fail. Hedge funds frequently engage in this type of relative …

Private equity firms have increasingly funded buyouts without using investment banks, but investment banks still add value to the private equity industry.

As the popularity of hedge fund strategies increases, the influence of these strategies in the traditional mutual fund world continues to grow. Once limited to only high net worth accredited individuals or institutional investors, many hedge fund strategies are now be deployed within mutual funds.
130/30 funds are one of these new mutual fund structures. The 130/30 structure differs from traditional mutual funds because the strategy allows managers to have both long and short exposure.
Most mutual fund managers can only have long positions. In a long only portfolio, managers purchase stocks in …

Merger arbitrage, also known as risk arbitrage, is an event driven trading strategy that attempts to exploit the market price spreads of equities during mergers.

The MIT Department of Economics World Economy
Laboratory Conference Washington, D.C.
Delivered April 26, 1994
When Rudi Dornbusch invited me to speak at this conference, he gave me a totally free hand in deciding what I wanted to talk about. Well, I want to discuss a subject which fascinates me but doesn’t seem to interest others very much. That is my theory of reflexivity which has guided me both in making money and in giving money away, but has received very little sdeerious consideration from anybody else. It is really a very curious …

George Soros
George Soros is an extremely successful stock speculator and investor. From 1970 to 1980, Soros’s Quantum Fund returned an average of 42.5% per year. Forbes ranked Soros as the 24th wealthiest person in the world in 2004, with an estimated net worth of $7.2 billion.
Soros is famously known for breaking the Bank of England in 1992 when his bearish trades precipitated the fall of the European monetary system. The successful trade earned Soros an estimated $1.1 billion. Soros successfully repeated this trade again during the 1996 and 1998 Asian currency …