Reference no: EM131126242
1 Need a 250 word response, with 1 source to these posts about hedge funds. Do not discuss what a hedge fund is...we all know that. Please address the following:
What takeaways might you have from this?
What did you learn from their discussion?
Do you agree? Disagree?
The hedge fund industry has grown from being a small market participant in the 1950's to a major global industry. The allure of hedge funds is the potential of high returns, using sophisticated trading strategies, and a relatively short required investment period. However, some investors are not so confident in what hedge funds have to offer and have concerns in some of the core characteristics, such as being too large and tending to be complex and non-transparent. The combination of concerns and popularized fear of hedge funds created pressure for the government to regulate the industry (Kaal & Oesterle, 2016).
In response to the financial crisis in 2008/2009, the Dodd-Frank Act was signed into law in 2010 "to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail', to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices" (H.R. 4173, 2010). Title IV of the Dodd-Frank Act requires the Securities and Exchange Commission (SEC) register hedge fund advisors and also requires advisors to maintain records, such as Form PF, that are necessary to avoid systemic risk. Form PF requires hedge funds larger than $150 million to consistently report risk exposure statistics (EY, n.d.). According to a study by Columbia Law School, the impact of Form PF was quickly absorbed by the hedge fund industry, but the reporting requirements and corresponding forms could be improved. Additional "fine tuning of the regulatory framework applicable to the hedge fund industry can further enhance the hedge funds' role in financial markets" (Kaal & Oesterle, 2016).
2. 250 Word Response - Hedge Funds - 1 Source Required
Need a 250 word response, with 1 source to these posts about hedge funds. Do not discuss what a hedge fund is...we all know that. Please address the following:
What takeaways might you have from this?
What did you learn from their discussion?
Do you agree? Disagree?
Over the past few years the hedge fund industries customer base has transitioned from just high net worth individuals to institutions such as pension funds and endowments. As a result the new customer is much more conservative in nature and more inclined to invest with managers with proven checks and balances. One new regulation requires hedge funds to register with the SEC. This is a positive step for hedge funds as it shows compliance and helps ensure the customer that managers are not just crooks trying to take their money. With the new regulation, however comes at a very steep price, one of which almost shuts out small hedge fund companies as the compliance requirements are proving to be extremely costly. For example a hedge fun once could start up with less than $5,000 and now it is almost impossible to get off the ground with less than $50m. (Jones, 2013)
3...250 Word Response - Hedge Funds - 1 Source Required
Need a 250 word response, with 1 source to these posts about hedge funds. Do not discuss what a hedge fund is...we all know that. Please address the following:
What takeaways might you have from this?
What did you learn from their discussion?
Do you agree? Disagree?
As defined by the SEC (2016), Hedge funds pool investors' money and invest the money in an e ort to make a positive return. Hedge funds typically have more flexible investment strategies than, for example, mutual funds. (SEC, 2016) Many hedge funds seek to profit in all kinds of markets by using leverage, short-selling and other speculative investment practices that are not often used by mutual funds. When looking at the key points in the definition of an accredited investor, a requirement to participate in hedge funds, from Rule 501 in Reg D, they must be: an individual having a net worth >$1,000,000, not a bank or savings and loan institution, insurance company, director/partner/executive of a issuer of the securities, etc. (e-CFR, 2016). These accredited investors know all well the risk of what they are doing when placing their money in this vehicle for alpha returns. However, these accredited investors still gain some assurance through the fraud fiduciary duty that is required of fund managers; but not all hedge fund mangers are required to be registered or file reports with the SEC.
In stating the above, hedge funds still need to be regulated for the purpose of consumer protection. Hedge funds did not cause the most recent financial crisis nor did they need a bailout from the taxpayers, but the interconnectedness of the markets and lax regulation causes potential systematic impacts. In order to achieve the goal of consumer protection, two regulations need to be set in place; outside of continuing to not sell to everyone outside the defined Rule 501. Kapoor (2015) proposes two additional regulations that include: 1) prohibition from institutions marketing to retail customers and 2) making sure that only qualified and registered advisers are allowed access to retail customers and if they market, loose their license and open up personal liability. This would provide protection, integrity, and stability for this collective investment vehicle. I'm all for common sense protections, but overbearing regulation just makes it harder for this investment vehicle to operate for these high alpha returns; then again, it's a place only the accredited investor that can participate in. For the accredited investor, its always a good rule of thumb for any investor is to always ask "why" before parking their money in such a speculative practices before advocating for even more regulation. Thoughts?