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Furthermore, because of the short product cycles in technology, there are additional opportunities for short positions. Rajaratnam observes this is similar to the old-fashioned (A. W. Jones) model because shorts are as important as long positions.

Moving to cash is another alternative sometimes taken. Given the turbulent second quarter of 2000, Galleon reduced its risk profile of the New Media Fund by raising a significant amount of cash.

LOSSES AND OTHER POTENTIAL PROBLEMS

Galleon's objective is to provide investors with a 20 to 25 percent average annual return over an 18-month period. In actuality, the results from inception in 1992 to today are about 36.0 percent. Rajaratnam observes, "If we go through a tough 18-month period, it could indicate that size is a problem. If that did happen, Galleon would return money to investors."

Have they gone through such a period? Rajaratnam says Galleon has had three-month rough periods, but not six-month periods, and has not had any down years. When there have been losses, Rajaratnam says they had read the chief executive officer or other senior management the wrong way. "We didn't understand their motivations and got caught in the marketing hype."

One memorable rough period was the fourth quarter of 1997 during the Asian crisis. Part of the problem was Galleon's lack of a good macro view of the world, and the firm got caught long technology stocks, losing 10 to 12 percent for the month of October 1997.

The lesson learned was to spend more time on macro issues. And if the fund is down 4 to 5 percent a month, the manager now reduces exposure.

PRIDE AND COMPETITIVENESS

Rajaratnam describes himself as a competitive person. "It is pride and I want to win. After awhile, money is not the motivation. I want to win every time. Taking calculated risks gets my adrenaline pumping."

Rajaratnam wanted a level playing field on which to compete. While he was at Needham, he felt that in investment banking a level playing field did not exist. Some of the non-U.S. banks that were getting involved