Research Handbooks in Financial Law series
Edited by Phoebus Athanassiou
Chapter 9: Self-regulation – What Future in the Context of Hedge Funds?
Marco Lamandini* 1. INTRODUCTION In a study on whether and how to regulate hedge funds, published shortly before the outbreak of the financial crisis, in August 2008, Professor Paredes1 summarized four basic regulatory choices: (i) do nothing; (ii) regulate hedge funds directly; (iii) regulate hedge funds indirectly, focusing on their managers, and (iv) regulate hedge fund investors. Comparative legislative history offers a wealth of examples of each of those approaches having been followed. However, the first option was to prevail, for a very long time, both in the United States (US) and in the European Union (EU), in the field of hedge funds, before the financial crisis tilted the balance in favor of external (direct) regulation. This chapter compares external to self-regulation, with a view to assessing what the practical differences between them are and to evaluating the role of self-regulation, in the post-financial crisis era, as a hedge fund regulatory tool. 2. AN OVERVIEW OF THE US REGULATORY APPROACH TO HEDGE FUNDS UNTIL THE OUTBREAK OF THE FINANCIAL CRISIS Dr. Alfred Winslow Jones is generally credited with forming the first hedge fund in 1949, in the US.2 The industry was to grow substantially over the * Full Professor of Company and Securities Law, University of Bologna. 1 Paredes, Troy (2007), ‘Hedge Funds and the SEC: Observations on the How and Why of Securities Regulation’, Washington University, Faculty Working Paper Series, paper no. 07-05-01, 3; Id., (2006), ‘On the Decision to Regulate Hedge Funds: The SEC’s Regulatory Philosophy, Style and Mission’,...