Market edge

Hedge funds have been in the news of late. A hedge fund is a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains. Hedge funds have been around since the 1940's but only became popular about 30 years ago. They are started by a group of people who are willing to put up money to invest in businesses who cannot get financing through the regular channels. This means they are high risk high return. Since this is private money as opposed to public companies the governing rules are less invasive. Nothing illegal about this but in the late 1990's some of these managers used a new tactic to game the system and it borders on illegal or it is definitely illegal. They discovered that gathering information from various sources could give them what became known in the business as "edge". They would contact old school mates, friends who had high positions with companies they were interest in and even used seduction to gather information. So using info from many sources they could get the jump on the market. Something as simple as knowing that company A beat earnings in advance can be an edge. The SEC caught on to this gimmick and started to wire tape these managers and many have gone to jail but they only caught a small number of those who are using this scheme. In big life insurance companies there is a separate account where they invest large sums in the market. The people that manage these accounts are not allowed to discuss investment strategies with other employees in the firm. There is an invisible barrier between these people called the, "China Wall". Mr. A tells his friend that he will be lunching at a certain place with other members of his group and they will be discussing how they will invest certain funds. His friend shows up at lunch and has a nearby table and accidentally overhears the news. He then passes this on to others who make investments accordingly. This is the kind of stuff that the small investor is up against. Who ever said life was fair.