one of the world's largest conferences on the industry next week in Bermuda.

The MAR/Hedge 5th International Conference on Hedge Fund Investments is being held at a time of crisis in the industry. Monday's opening discussion perhaps mirrors the feelings of many of the 900 delegates attending the three-day conference at the Southampton Princess.

"Crisis and corrections: Implications for hedge funds'' queries whether the reputation of the hedge fund industry has been tainted by the overall performance since the bear started devouring emerging markets.

"With the stock markets falling precipitously, some hedge funds performed well while others did not,'' the blurb for the panel discussion states.

"Mortgage backs. Russian funds and emerging markets suffered great losses, taking many investors by surprise. Can the damage be reversed?'' There are about 4,000 hedge funds in existence, and many had losses of about 50 percent or more during August. The most notable has been the $3.5 billion bailout of Long Term Capital Management, one of the industries brightest stars until 14 banks had to step in to prevent a meltdown on Wall Street.

Closer to home Bermuda-based hedge fund operator Everest Capital Ltd. has reportedly lost between $1.3 billion of the $2.7 billion it managed at the beginning of the year. Everest's troubles have been featured on the BBC, on Bloomberg, Reuters, and the Wall Street Journal.

And as reported in The Royal Gazette New York-based Oppenheimer & Co., Inc.

has had to close down its Bermuda operation. Three funds previously managed from the Bermuda office are now being managed from New York.

Oppenheimer's emerging market funds reportedly lost about $700 million in value in the year to date. Like Everest the funds were principally hurt by investments in Russia and Latin America.

While some other emerging market hedge funds on the Island are also reportedly suffering, at least one Bermuda-based manager is pleased with the performance of his fund.

Paul Lemmon, managing director of Voyager Select IPO Fund said the conference is occurring at a key moment in the industry and there will be a lot of gloom among participants.

"You are going to see a lot of hedge fund managers that are going to be looking for answers from each other,'' he said. "I'll be bearish, but I'll be walking around with a cheesy grin,'' he said.

That's because Voyager Select, which invests in companies making an initial public offering of shares, gained five percent in August. The fund actually gained 80 percent, but that's because of what Mr. Lemmon calls an "unusual event'' in which Voyager completely purchased one of the companies it had holdings in.

Although valuations are still being done he believes the fund also performed reasonably well in September. He said the fund had the foresight earlier to hedge its risk which included shorting stocks and holding cash.

"We were smart in hedging our portfolio and arbitraging it a long time ago,'' he said. "We didn't want a lot of market risk. We were bearish about a slowdown in the IPO market and of the high valuations. We put these hedges in our positions so that while in an up market we would do ok, in a down market we would outperform the indices.'' That's a typical strategy of hedgers, but these types of mutual funds are quite varied in what they actually do. Those invested in emerging markets suffered while those primarily in the US market are being hurt by volatility in the prices of their holdings depending on whether they were hedged or not.

Many funds getting hit by the markets were also leveraged, using their assets to multiply the amount they could actually hold. Long Term Capital for example, leveraged $4 billion into $1.25 trillion in assets. In a down market the leverage magnifies the hurt.

"The timing of the conference is excellent,'' Mr. Lemmon said. "It's a time when there is uncertainty among the public. The market has been terrible to hedge funds. It's interesting times.'' Meanwhile, Cameron Renaud, Bank of Bermuda vice president of asset management, private clients, said he believed the mood would be upbeat at the conference.

Hedge fund industry in crisis Only the fund managers who came through the market unscathed are going to show up.

"The guys with something left to sell are going to show up,'' Mr. Renaud said. "The ones who got hurt are going to be too busy licking their wounds at home. You don't go outside if you're bleeding to death.'' He emphasises there are many hedge funds doing well in volatile markets. You only hear about the ones that suffer because of poor decisions and strategies.

"Everybody is being painted with the same brush,'' he said. "It's the leveraged players and the global macro players who got hurt. There are some groups making good money. Some guys love this type of market volatility.

That's when their strategies begin to pay off.'' He said hedge funds varied widely. Often people were unaware of the kinds of risks they were taking.

"People jump into these things and don't know what they are getting into,'' he said. "It's very much a market of buyers beware. There are many types of strategies. Not all of them are bad. Low risk hedge funds as an asset class can't be ignored.'' He believes many of the poor performers will be gone in three or so months leaving behind the good hedgers.

"All the big leveraged plays are out of the market,'' he said. "It has been a cleansing of the market and we can get back to more rational trading. You've got to believe the guys that are going to be left in three months are going to have good performance strategies.'' The Bank of Bermuda is currently considering low risk hedge funds as part of its portfolio investment strategy. A high risk portfolio might have seven to nine percent of its assets in hedge funds, while a low risk one might have three to four percent holdings.

"Because of the risk return attributes of certain types of hedge funds it makes sense to have them as part of a diversified portfolio,'' Mr. Renaud said. "But you have to be very specific about what you are buying.'' Q&A ABOUT HEDGE FUNDS WASHINGTON (AP) -- Hedge funds are under close scrutiny because of the $3.6 billion private bailout last week of Long-Term Capital Management LP, facilitated by the Federal Reserve Bank of New York. Outside of Wall Street, little is known about these secretive and largely unregulated investment funds.

Here, in question and answer form, is a look at hedge funds.

Question: What are hedge funds? Answer: They're investment funds that make sophisticated financial bets with money from wealthy investors. Hedge funds often use the money to speculate on relative differences in interest rates among securities.

Q: How do they do that? A: They use computer modelling and derivatives -- often-complex financial instruments whose value is derived from an underlying security, commodity or asset -- in hopes of producing a profit, no matter which direction stock prices or interest rates move as a whole.

Q: How many hedge funds are there? A: Nobody knows for sure. Experts estimate there are as many as 4,000 domestic and offshore hedge funds controlling as much as $400 billion in investor equity.

They are not subject to the same kind of strict disclosure and oversight rules as mutual funds because high-rolling investors presumably have the resources to look after themselves. The government doesn't require hedge funds to disclose investors' names or investment strategies -- even to investors themselves.

Q: How wealthy do investors have to be? A: Federal securities laws limit participation in each fund to 500 investors.

Individuals must have incomes of at least $200,000 in each of the past two years ($300,000 for couples) or a net worth of at least $1 million.

Q: Why the concern about hedge funds? A: The collapse of a major hedge fund could damage the banking system and the economy. The banks and brokerage firms lending to the fund would face huge losses, and unwinding of the fund's positions could spur panic selling and losses for other investors.

In the case of Long-Term Capital, three of the companies that joined together to rescue the fund and take control of it -- Bankers Trust, Chase Manhattan and J.P. Morgan -- are banks that benefit from the taxpayer-financed deposit insurance fund. Some critics suggest that puts ordinary taxpayers at risk, and that banks that lend money to troubled hedge funds may pass the costs on to consumers.

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