Community of Support: Moving Toward Indirect Regulation of the Hedge Fund Industry, 3 J. Marshall Global Mkt. L.J. 1 (2014)

Authors

Randy Haight

Abstract

The popularity of hedge funds has exponentially increased over the past decade due to the unparalleled gains that hedge funds present for investors. However, hedge funds remain largely unregulated in comparison to other financial instruments such as traditional stocks and derivatives. The emergence of the hedge fund as a component of the financial industry has brought with it questions pertaining to the optimal method of hedge fund regulation. The foremost concern in regulating hedge funds is to strike a balance between market stability and investor protection. In order to do so, an equilibrium must be found between leaving hedge funds unrestrained on the one hand, so that hedge funds can utilize innovative strategies and provide the unique benefits they offer to investors, and imposing regulation on hedge funds on the other hand, in order to protect investors and the economy against pertinent and systemic economic risks. This Article argues for a more indirect system of regulation of hedge funds, rather than a more direct system of regulation. This Article proposes and argues for an architecture of law and policy that would seek to strike the necessary regulatory balance that the Article describes. In doing so, this Article critically analyzes, in light of the needs, benefits, and qualities of hedge funds, the historical impacts and regulatory merits of the Investment Advisors Act of 1940, the Investment Companies Act of 1940, Goldstein v. U.S. Securities and Exchange Commission, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the regimes of registration and disclosure that are contemplated by such laws.