Hedge fund regulation, market discipline and the Hedge Fund Working Group

The term ‘hedge fund’ is a term of art, widely understood as representing a form of ‘alternative’ collective investment vehicle, lightly regulated and targeted in the main at wealthy investors.1 Often based off-shore in centres such as the Cayman Islands, the Virgin Islands and Bermuda, and serviced by on-shore mangers, hedge funds have typically been associated with investments in highly speculative, complex and/or illiquid instruments,2 the use of contrarian investment strategies3 and highly leveraged positions.4 Estimates indicate that from 1998 to early 2007 the number of hedge funds tripled from 3000 to more than 9000,5 while assets under management increased from more than $200 billion to in excess of $2 trillion.6 Although the United States remains by far the most popular location for hedge fund managers, where...