The announcement this week of a new Bermuda-based Hedge Fund exchange, jointly managed by Hedgeworld.com and the Bermuda Stock Exchange (BSX), brings Bermuda's hedge fund industry into the spotlight.

The announcement was timed to coincide with the annual MAR/Hedge conference, attended by 1,500 interested parties this week at the Southampton Princess Hotel.

For many people, the first question all this activity prompts might be: What exactly is a hedge fund? To find out, The Royal Gazette spoke this week to Johann Wong, a member of the executive management committee of the BSX and one of the principals of FITX Capital Ltd., a trading member of the BSX. Mr. Wong is also the president and founder of Hedgeworld.com "A hedge fund is a pool of capital which is able, unlike more traditional funds, to invest in a broad range of investments, such as derivatives, options and commodities,'' Mr. Wong explained. "One of the common attributes of a hedge fund is that the manager earns a performance-related fee. In other words, the manager's remuneration is based on his performance.'' In the United States, a hedge fund manager is referred to as its "general partner'', underlining the financial relationship between the fund manager and the investors.

As much as $300 to $500 billion is invested in hedge funds, which have been recording double-digit growth for several years. Joel Press, the managing partner of Ernst & Young, has recently estimated that amount could rise to a trillion within a few years.

The hedge fund was invented in 1949. Generally, initial investments are higher than is the case with mutual funds, since hedge funds attract a more sophisticated investor with a larger asset base.

Many hedge funds trade less frequently than the weekly or monthly trading common to more widely-held mutual funds. "A lot of funds trade quarterly, annually, or even as infrequently as once every three or five years,'' Mr.

Wong explained.

The frequency of trading means that, for some holders, gains cannot be easily realised, and may be lost by the time the next trading date comes around.

Equally, those who view a fund as underpriced may want to invest in it, but be unable to do so for some time ahead. That's where the new exchange comes in.

"As a trading member of the BSX, we are allowed to `cross' shares,'' Mr. Wong explained. `Crossing' is the business of matching a willing buyer and a seller outside normal trading hours.

The BSX has developed a substantial market in crossing stocks and shares. On Wednesday of this week, for example, 8.2 million shares worth $306 million crossed on the BSX.

"The HedgeTrust Exchange will act as a marketplace for the crossing and settlement of trades in non-US domiciled hedge funds through the BSX, a regulated exchange,'' Mr. Wong explained.

The HedgeTrust Exchange will be launched in January, 2000. It will be offered exclusively through Hedgeworld's website, www.hedgeworld.com.

"On the site, we offer access to a database of over 2,200 funds worldwide, together with news and information content, members' mailboxes and a host of other services,'' Mr. Wong said.

"Our analysis shows that the demand is there, and we have experienced large numbers of individuals and institutions joining Hedgeworld, many of whom we expect to take an interest in the Hedge Trust Exchange.'' Declining tech stocks good news for hedge funds: Page 31 Hedging: Johann Wong