A bold new theory on why attempts to regulate hedge funds tend to fail
|Sep 24th, 2009 | Filed under: Academic Research, Hedge Fund Regulation, Today's Post | By: Alpha Male||
Over the years, we’ve often marvelled at the sheer volume of failed hedge fund regulations at the state, national or international level. It’s enough to make you ask why?
A recent paper written recently by Paulo Robotti of the Institut Barcelona D’estudis Internacionals (IBEI) proposes a reason for this apparent string of failures. Robotti draws on political theory that he says was first developed in the early 1970’s called “regulatory capture”.
Robotti divides the sordid history of hedge fund regulation into two distinct phases. The first phase (1998-2003) was a response to LTCM and was marked by attempts to govern the potential systematic risk posed by hedge funds. The President’s Working Group (PWG) and Financial Stability Forum (FSF) were the legacies of this era.
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