Ana Maria Fagetan - The Regulation of Hedge Funds: A Global Perspective

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In recent years we have witnessed seismic changes in international capital markets both with regard to the entities that dominate the financial system and the volume and nature of the transactions. Fund management has grown exponentially and hedge funds in particular have become mainstream players. Their growth and systemic potential have featured prominently in the media, as well as in regulatory and policy circles.

The question of whether hedge funds should be further regulated or not has become hotly contested in the aftermath of the global financial crisis (GFC). Those in favor of tighter public regulation claim that hedge funds are a potential source of financial instability while those that suggest that self-regulation or light touch regulation suffice point to the fact that the hedge fund industry was not subject to the bailouts that characterized bank rescuesand associated moral hazard incentivesduring the GFC. If the costs of failure are internalized and the entity (the hedge fund) is wound down when the money runs out rather than expecting or demanding official protection, thenthe latter aguethere is no moral hazard and consequently no need for further regulation.

In her book The Regulation of Hedge Funds. A Global Perspective Ana Maria Fagetan provides a comprehensive review of recent development in hedge fund regulation and legislation post GFC, including the Dodd Frank Act in the US and key directives in the EU such as the Alternative Investment Funds Managers Directive (AIFMD), the Markets in Financial Instruments Directive (MiFID II), the new EU Prospectus Regulation (2019) and UCITS IV and V Directives. The book covers historical developments, regulatory changes and trends, the dangers of over-regulation and the demand for greater transparency.

The book assesses the current state of the regulation of hedge funds in several onshore jurisdictions: UK, Italy, France, Ireland, Luxembourg, Malta, Switzerland, and offshore jurisdictions: Cayman Islands, British Virgin Islands, Mauritius and Delaware, considering how the law should balance investor protection, integrity in the conduct of the business and prevention and the prevention and containment of systemic risk.

The author argues that there are several gaps in the existing literature on hedge funds. Why countries which were in the past in favor of lighter regulations emerged as supporters of a tighter regulation after the international crisis? And, why, a decade after the crisis, populist policies in the US and UK (post Brexit) create regulatory divergence instead of convergence? She answers all these challenging questions in this timely book.

This volume provides a much needed, comprehensive and economically-sophisticated overview of hedge fund regulation The book represents a significant contribution to the literature in the field and will appeal to both financial law scholars and students on the one hand and regulators and practitioners on the other hand. Many of the findings are not narrowly limited to the field of hedge fund regulation but are more broadly applicable to the evolution of financial regulation generally.

Providing a comprehensive review of the recent development of hedge funds regulation, The Regulation of Hedge Funds: A Global Perspective reveals the dynamic legislative challenges to which the financial sector across the globe has been subject to, providing up-to-date insights into the ever-changing legislation of hedge funds. The book guides the reader through the complex interplay of the many state laws and regulationsthe Dodd Frank, the AIFMD, the UCITS IV and V Directives, the MiFID II, along with national regulations of each country analyzed. Additionally, the regulatory analysis of the selected jurisdictions, located both onshore and offshore, include the US, the UK, several EU jurisdictions and also particular offshore jurisdictions, offers an understanding of the historical developments, current regulatory changes and further possible perspectives and shifts expected to happen, most of these measures being stemmed from the crisis regulatory overreaction.

By assessing the current state of the regulation of hedge funds and considering the regulatory position of hedge funds in different states of the globe, the author intends to provide an answer to the question of whether hedge funds should be regulated (tight regulation) or not (light touch). The author underlines the role of prominent player such as the EU and the US in the aftermath of the global financial crisis.