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Introduction The Hedge fund industry is surrounded by many upset and controversy. Lack of excessive returns, unclear impact, oversight on the market are all subjects of concerns for the public and market participants. The hedge fund industry worries small investors and monetary professional who do not know how to accurately assess the risks associated with hedge currency. Hedge funds are mainly operating like mutual funds but not the managers. Oversight and low regulation allow them to not make public information on their profits and losses or enthronisation strategies. Hedge funds rely a lot on volumes to achieve profits. Systemic risk became a major part of the debate since LTCM in 1998. report card of LTCMBackground Long Term Capital Management - LTCM - was a hedge fund that was established in 1994 by John Meriwether who was a fortunate vex trader at Salomon Brothers. Meriwether was one of the first on Wall Street who hired professors and academics who ap plied models based on financial theories to trading. This team demonstrated an magnate to precisely calculate risk and generated amazing returns (Goldberg, M., 2012). The partners of LTCM included a professor from Harvard University, Nobel Price-winning economists, a former vice president of the Board of Governors of the Federal Reserve, and other successful bond traders. This group of traders and academics attracted about $1.3 billion from different institutional clients (Goldberg, M., 2012).Investors were not allowed to discipline any money out for three years and paid $10 million to get into the fund. Annual return in 1995 was 42.8% after management took 27% off the top in fees. In 1997 LTCM successfully hedged most(prenominal) of the risk from the Asian currency crisis by ... ...ge (Goldberg, 2012).Should the Fed have intervened?In order to save the U.S. banking system, the President of the Federal Reserve Bank of New York William McDonough convinced 15 banks to bail out L TCM with $3.5 billion, in return for a 90% ownership of the fund. Also, the Fed started lowering the Fed funds rate as a assurance to investors that the Fed would do whatever it took to support the U.S. economy. Without that direct interference, the entire financial system was threatened with a collapse (Amadeo, 2012).However, the Fed brokered and intervened a intermit deal for the LTCM managers and shareholders. This was the precedent for the Federal Reserves bailout role with AIG, Bear Stearns, Fannie Mae and Freddie Mac during the financial crisis. Once financial companies realized that the Fed would bail them out, they were more willing to take risks (Amadeo, 2012).