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(FINANCE) a limited liability partnership ([LLP]), originally limited to 99 partners, and organized to trade securities under specialized guidelines. The first hedge funds were organized to be a [counterparty] to the riskiest forms of derivative transactions: writing exotic options or swaps in which the buyer transferred most risks (and potential gains) to the hedge fund, but then offsetting the risk with different [derivatives]. The first hedge funds benefited (or thought they benefited) from the Black-Scholes formula used to calculate the value of options; supposedly a hedge fund manager could design an immensely complex portfolio consisting mainly of explosively volatile instruments , whose pieces were supposed to absorb each other's risk. Hedge funds mainly avoided the [consequences] of the financial meltdown they helped create, racking up gains through the '00's that far exceeded the rest of the stock market.
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