IDEAS home Printed from https://ideas.repec.org/a/fip/fedaer/y2006iq4p35-48nv.91no.4.html
   My bibliography  Save this article

Hedge funds and investor protection regulation

Author

Listed:
  • Franklin R. Edwards

Abstract

A recent Securities and Exchange Commission (SEC) ruling requiring hedge fund advisers to register with the SEC aims to foster conduct and compliance to better protect hedge fund investors. This article focuses on investor protection regulation, considering its goals and likely costs and benefits. After reviewing some alternative regulatory approaches, the author examines the current U.S. regulatory structure for hedge funds, which has, perhaps unwittingly, separated hedge fund investors into two distinct classes -- retail and wholesale -- defined by wealth levels. ; The SEC's recent ruling reflects its concern about the growing "retailization" of hedge funds -- the increasing ability of less qualified (retail) investors to access hedge fund investments -- as general wealth levels rise and as more affordable investments, such as funds of hedge funds (FoFs), proliferate. In addition, institutional investors have increased their investments in hedge funds, exposing even more individual investors, at least indirectly, to a type of risk they may be unfamiliar with. ; The author believes that the costs of increased regulatory protection for hedge fund investors will ultimately prove to outweigh the benefits, and he argues that hedge fund investment strategies be made more, not less, accessible to a broader array of retail investors. In particular, he recommends that the SEC consider authorizing FoFs under a regulatory structure that better enables hedge funds to pursue absolute-return strategies so that retail investors can benefit from them.

Suggested Citation

  • Franklin R. Edwards, 2006. "Hedge funds and investor protection regulation," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 35-48.
  • Handle: RePEc:fip:fedaer:y:2006:i:q4:p:35-48:n:v.91no.4
    as

    Download full text from publisher

    File URL: http://www.frbatlanta.org/filelegacydocs/erq406_edwards.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William K.H. Fung & David A. Hsieh, 2006. "Hedge funds: an industry in its adolescence," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 1-34.

    More about this item

    Keywords

    Hedge funds;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:2006:i:q4:p:35-48:n:v.91no.4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector). General contact details of provider: http://edirc.repec.org/data/frbatus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.