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COMBINES TRADING AND RESEARCH

Galleon has a strong trading department and a strong research department—neither dominates. Of the seven partners, three are in technology analysis, two in health-care analysis, and two in trading. This dual strength is something not usually seen at a hedge fund, where traders tend to have short-term horizons and those in research have long-term time horizons.

This dual focus has to do with the seven partners coming from the brokerage side. Rajaratnam, Rosenbach (who coheads trading and risk management), Sud (portfolio manager of the Galleon Healthcare funds), and Arjavalingam (comanager of the Galleon Technology funds) came from Needham Investments. Jeff Bernstein (who comanages the Galleon New Media Funds) as well as Prem Lachman (who comanages the Galleon Healthcare Funds) came from Goldman Sachs. David Slaine (who coheads trading and risk management) came from Morgan Stanley.

Galleon trades actively around its core positions. One example of this is if Galleon owns 500,000 shares of, say, Intel, and the stock falls by 7 percent for no apparent reason, the traders may buy another 100,000 shares. They can buy and sell 25 percent to trade around the core position. By doing this, Galleon generates incremental returns while minimizing market exposure. Therefore trading velocity is high. It also means senior traders are in these positions, and the traders own about one-third of the company.

The traders are not rewarded by how much they make. "They are the defensive line; they don't score points. They are there to limit losses. I don't want them to try to hit home runs," Rajaratnam says.

Bottom-up research prevails. Over 300 companies are visited per month. Galleon views Wall Street analysts as its competition, and its goal is to arbitrage research and consensus thinking with its positions. So if a brokerage firm analyst feels that the personal computer industry will grow at 10 percent and Galleon's research indicates it will grow at 15 percent or 3 percent, Galleon will arbitrage the difference in the two perspectives.

Rajaratnam observes that typical sell-side analysts spend one-third of their time chasing initial public offerings, secondary offerings, banking business, and mergers and arbitrage; another one-third of their time