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exclusively on investing in companies in the communications sector. This includes electronic communications, voice communications, and data communications.

Rajaratnam says Galleon has grown by word of mouth and hasn't focused on marketing. One organization has developed a fund for Galleon, but that is only about $50 million out of the total.

The partners and employees of Galleon have over $300 million invested in the various Galleon funds. Any employee can participate in Galleon ownership.

MANAGE VOLATILITY AND DOWNSIDE RISK

Rajaratnam believes that investors invest in hedge funds because the downside risk is managed. They are willing to give up some on the upside to manage the downside. He points to the Goldman Sachs Internet Index, which was down 45 percent for the first half of 2000. In contrast, the Galleon Internet Fund was up 30 percent. "We were able to manage volatility on the downside," he explains.

There are about 100 positions in the portfolio. One situation cannot have more than 5 percent of the portfolio, although a position can grow to 7 percent before it is trimmed. About five have a 5 percent allocation, and about 20 to 30 of the positions each make up 1 to 2 percent of the portfolio.

Most of the trades are U.S.-based or American depositary receipts of non-U.S. companies such as Nokia or Ericsson. He likes companies with ADRs because they report according to U.S. GAAP (generally accepted accounting principles) standards, he can attend investor meetings, and he has access to management. He wants to stick to local expertise in order to avoid any expensive lessons.

Leverage is not used. For hedging purposes, Galleon prefers shorting stocks. While options are used, they tend to be expensive. As an interim measure, he may use Nasdaq options on Morgan Stanley High Technology Index. Shorting is very important to the firm. Often, says Rajaratnam, the long and short exposure is less than 100 percent. For example, in 1999, when returns were 100 percent, 70 percent of that was from the long side and 30 percent from the short side. Rajaratnam points out that because technology is the greatest wealth creator as well as wealth dissipator, there are many opportunities for short positions.