As the stock markets around the world tumble the hedge funds are lying low. The retreat only confirms their peculiar nature; they put their best show when they are small and nimble. It is the days of big daddies in the investment management industry that could be numbered.

After the tempest calm follows, unfortunately after a stock market scandal, scrutinization follows and it is likely to be anything but smooth. Each incident of volatility in the stock markets heightens the attention of the government officials and others to the role played by the hedge fund industry in the financial market dynamics.

Hedge funds were implicated in the 1992 crisis that led to major exchange rate realignments in the European Monetary System, and again in 1994 when they created turbulence in the international bond markets. The hedge funds struck again in 1997 in the wake of the upheavals in the Asian financial markets. Concerns regarding them were amplified in 1998, with allegations of large hedge fund transactions in various Asian Currency markets. Then there was the near collapse of the major hedge fund, Long-Term Capital Management (LTCM). Government officials feared that hedge funds were the latest catastrophe to hit the financial markets scene; they stepped in to coordinate a successful but controversial bailout for LTCM.

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