With all the finger-pointing going on right now on Wall Street, the topic of hedge fund regulation is never far from the front pages.  So today and tomorrow, we will review a couple of comprehensive, but very readable essays written not by financial academics or hedge fund managers, but by legal scholars.  These papers paint a contrasting picture of the most appropriate regulatory framework for hedge funds.

The first, which we discuss below, was written by Houman Shadab of George Mason University.  Shadab’s article “Fending for themselves: Creating a U.S. hedge fund market for retail investors” was published in the Spring 2008 NYU Journal of Legislation and Public Policy and is available here.  In it, he argues that “financially sophisticated” US retail investors are actually hurt by regulations preventing them from investing in hedge funds, not helped by them.

The second paper, covered tomorrow, defends government regulation of hedge funds, stating that ”self-regulation will not necessarily result in any efficiency gains as government regulators will remain the ultimate drivers of any regulation.”

Shadab’s paper starts by saying that the US actually has a relatively restrictive hedge fund regulation:

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