Like nocturnal forest creatures, hedge fund managers have
not relished the glare of attention brought on by the
difficulties of the sub-prime mortgage market. They relish even
less the suggestion that anyone should investigate, regulate or
license private investment vehicles like hedge funds. The main
argument against such measures has been that the sophisticated
investors in hedge funds are perfectly able to look out for
themselves.
This is a compelling argument. It breaks down only if
aspects of typical hedge fund behaviour pose risks to
investors; risks that even sophisticated parties could not be
expected to divine from a careful reading of a private
placement memorandum. These are not the risks of fraud,
deliberate concealment or gross mismanagement on the part of
hedge fund insiders. Examples of that kind have been few and
far between in the hedge fund industry. But there are features
of a typical hedge fund structure...