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Hedge Funds and Risk-Decoupling – The Empty Voting Problem in the European Union

68 Pages Posted: 25 Aug 2012 Last revised: 7 Mar 2013

Wolf-Georg Ringe

University of Hamburg - Institute of Law & Economics; University of Oxford - Faculty of Law

Date Written: August 1, 2012


Negative risk-decoupling, otherwise known as empty voting, is a popular strategy amongst hedge funds and other activist investors. In short, it is the attempt to decouple the economic risk from the share’s ownership position, retaining in particular the voting right without risk. This paper uses three perspectives to analyse the problems created by negative risk-decoupling: an agency costs approach, an analysis of information costs, and a perspective from corporate finance. It shows how risk-decoupling is a type of market behaviour that creates significant costs for market participants, in particular existing shareholders and potential investors.

The paper then develops regulatory responses, envisaged particularly for EU level lawmaking, but also raises underlying issues on a more general level. Whilst several proposed regulatory tools are rejected, the paper prefers a solution that uses continuous transparency as the cornerstone. In addition, it suggests that in certain individual cases, national regulators should be empowered to suspend activists’ voting rights.

The paper concludes by offering a concrete legislative proposal, amending the European Transparency Directive.

Keywords: empty voting, risk-decoupling, hedge funds, derivatives, securities lending, disclosure, disenfranchisement

JEL Classification: G30, G32, G34, G38, K22

Suggested Citation

Ringe, Wolf-Georg, Hedge Funds and Risk-Decoupling – The Empty Voting Problem in the European Union (August 1, 2012). Seattle University Law Review, Forthcoming; Oxford Legal Studies Research Paper No. 52/2012. Available at SSRN: or

Wolf-Georg Ringe (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

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University of Oxford - Faculty of Law

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