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which funds get to keep their shorts on, are allocated new issues, receive the first call on secondary blocks, and can afford to maintain presence and key relationships in markets that are currently unattractive but may become opportune at a moment's notice sometime down the road. Large teams of analysts are needed to evaluate the creditworthiness of companies. Technology is another area where size is important.

EVOLUTION

Stark says the firm's philosophy, strategy, and goals have remained unchanged since inception. "Our goal is to make money independent of the direction of the market. We are risk-averse. We want to protect our principal but earn 20 percent-plus. We always do this through arbitrage."

The tactics and instruments, however, have changed through the years. Some types of convertibles no longer exist. There are more convertible investors. The techniques are more sophisticated, and more emphasis is placed on technology information. The degree to which hedging is done is more sophisticated.

Stark recalls that 10 to 15 years ago there were few arbitrageurs and the markets were smaller. At that time, you could rely on a spreadsheet. Today, the number and complexity of instruments is very high. Instruments need to be screened on a worldwide basis, and potential trades need to be monitored. Stark says that one position could be intertwined with 10 to 15 trades. Today, technology is required to bring it all together. Equities, options, and convertibles are all involved, and they each have different hedge ratios. This requires powerful risk management tools, powerful screening tools, and a large staff to maintain it all. Technology is very important to Stark Investments in terms of screening opportunities, keeping track of risk exposure, execution of trades, and the like.

PERFORMANCE

The year of the crash, 1987, was the first full year that Stark was professionally managing money. He did quite well that year, perhaps because he was concentrated on the non-U.S. markets and totally out of the U.S. markets.

The year 1990 was characterized by a junk bond scare. Many arbi-