Hedge Fund Valuation: Retailization, Regulation, and Investor Suitability

Abstract:     
Hedge fund pricing and valuation errors do happen despite efforts to ensure fair pricing at all times. The credit crunch and the global financial crisis have illustrated that the valuation of complex financial products and hard-to-value assets is one of the most pressing issues affecting confidence in the financial industry today.

The paper analyzes the factors that contribute to the valuation problem and summarizes existing proposals and rules as they pertain to valuation of hedge funds. Following a discussion of the phenomenon of “retailization” and how it is recognized and addressed by regulators in various jurisdictions, the paper analyzes the reasons for a different treatment of retail and qualified investors. The paper concludes with a discussion of regulatory options to address the differences as well as potential problems with such options and analyzes alternatives.

Number of Pages in PDF File: 58

Keywords: Valuation, Valuation Errors, Hedge Fund, Retailization, De Minimis Exception

Accepted Paper Series