Abstract

http://ssrn.com/abstract=1915609
 


 



Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem


Anita K. Krug


University of Washington School of Law

August 23, 2011

Hastings Law Journal, Vol. 63, No. 1, p. 1, 2011
University of Washington School of Law Research Paper No. 2011-22

Abstract:     
This Article contends that more effective regulation of investment advisers could be achieved by recognizing that the growth of hedge funds, private equity funds, and other private funds in recent decades is a manifestation of institutionalization in the investment advisory context. That is, investment advisers today commonly advise these “institutions,” which have supplanted other, smaller investors as advisory clients. However, the federal securities statute governing investment advisers, the Investment Advisers Act of 1940, does not address the role of private funds as institutions that now intermediate those smaller investors’ relationships to investment advisers. Consistent with that failure, investment adviser regulation regards a private fund, rather than the fund’s investors, as both the “client” of the fund’s adviser and the “thing” to which the adviser owes its obligations. The regulatory stance that the fund is the client, which recent financial regulatory reform did not change, renders the Advisers Act incoherent in its application to investment advisers managing private funds and, more importantly, thwarts the objective behind the Advisers Act: investor protection. This Article shows that policymakers’ focus should be trained primarily on the intermediated investors – those who place their capital in private funds – rather than on the funds themselves and proposes a new approach to investment adviser regulation. In particular, investment advisers to private funds should owe their regulatory obligations not only to the funds they manage but also to the investors in those funds.

Number of Pages in PDF File: 52

Keywords: Investment Advisers, Investment Advisers Act of 1940, Hedge Funds, Private Funds, Securities Regulation, Institutionalization

JEL Classification: G1, G2

Accepted Paper Series





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Date posted: August 25, 2011 ; Last revised: December 23, 2013

Suggested Citation

Krug, Anita K., Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem (August 23, 2011). Hastings Law Journal, Vol. 63, No. 1, p. 1, 2011; University of Washington School of Law Research Paper No. 2011-22. Available at SSRN: http://ssrn.com/abstract=1915609

Contact Information

Anita K. Krug (Contact Author)
University of Washington School of Law ( email )
William H. Gates Hall
Box 353020
Seattle, WA 98195
United States
206-543-4145 (Phone)
HOME PAGE: http://www.law.washington.edu/directory/Profile.aspx?ID=504

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