Wednesday, June 13, 2007
I'm spending the summer researching and writing on the sometimes irrational effects of SEC regulation of hedge funds and private equity. In this vein, I'd like to recommend a recent short essay on the SEC and hedge funds by Troy Paredes, a law professor at Washington University School of Law. The article is entitled Hedge Funds and the SEC: Observations on the How and Why of Securities Regulation. Here is the abstract:
This short Essay addresses three topics on one aspect of the hedge fund industry - the SEC's recent efforts to regulate hedge funds. First, this Essay summarizes the regulation of hedge funds under U.S. federal securities laws insofar as protecting hedge funds is concerned. The discussion highlights four basic choices facing the SEC: (1) do nothing; (2) substantively regulate hedge funds directly; (3) regulate hedge fund managers; and (4) regulate hedge fund investors. Second, this Essay addresses the boundary between market discipline and government intervention in hedge fund regulation. To what extent should hedge fund investors be left to fend for themselves? Third, this Essay highlights two factors impacting regulatory decision making that help explain why the SEC pivoted in 2004 to regulate hedge funds when it had abstained from doing so in the past. These two factors are politics and psychology.
The essay is a follow-up to his longer article: On the Decision to Regulate Hedge Funds: The SEC's Regulatory Philosophy, Style, and Mission. For anyone with an interest in the SEC's repeated seemingly inexplicable attempts in this new millennium to regulate hedge funds, they are both must reads.