As hedge funds reveal considerable exposures to the alleged fraud at Bernard L Madoff Investments Securities and, less recently, Petter Company, investors are understandably looking for someone to blame. Exposure to the frauds is likely to result in the suspension of redemptions or even the winding-up of some funds. Faced with few alternatives, aggrieved investors with complaints about due diligence and diversification may feel that the hedge fund manager should be held to account.
But hedge fund managers may feel that, in relation to the Madoff scandal in particular, Securities and Exchange Commission (SEC) regulation was too light and, somewhat ironically, insufficient regulation of domestic US-registered Investment Act 1940 advisers is to blame. European politicians have started to call for a clamp-down on hedge funds and offshore centres generally with some, such as the Italian Finance Minister Gulio Tremonti, even calling for the outright abolition of hedge funds.
Further regulation...