Hedge Fund Regulation

Abstract

The debate over hedge fund regulation suffers from several shortcomings. One is that the opponents to regulating such private investment companies have stuck steadfastly to a short list of polished communications ‘talking points’. One is that hedge funds are beneficial because they disperse risk in the financial system. Two, they are beneficial because they provide liquidity to financial markets. Three, bank and other regulated financial firms will discipline hedge fund their role of prime brokers. While such sound-bites may be good for improving public relations, they often do not provide legitimate content for an informed public debate. This policy brief evaluates these talking points.