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

Regulatory power, post-crisis transatlantic disputes, and the network structure of the financial industry

Business and Politics ◽

10.1017/bap.2017.1 ◽

2017 ◽

Vol 19 (2) ◽

pp. 241-266 ◽

Cited By ~ 5

Author(s):

Lucia Quaglia

Keyword(s):

United States ◽

European Union ◽

Network Structure ◽

Hedge Funds ◽

Financial Regulation ◽

The United States ◽

The European Union ◽

Financial Industry ◽

Active Involvement ◽

Bank Structure

AbstractThe international financial crisis was followed by waves of domestic regulatory reforms, first and foremost, in the United States and the European Union. Post-crisis financial regulation was sometimes different across jurisdictions. Moreover, the United States and the European Union sought in various ways to (re)assert their regulatory power not only vis-à-vis the market, but also with regard to other jurisdictions, which often resisted the projection of regulatory power beyond national borders. Consequently, a handful of important post-crisis transatlantic regulatory disputes emerged concerning E.U. rules on hedge funds, U.S. rules on bank structure and E.U. and U.S. rules on over-the-counter (OTC) derivatives. These disputes mainly involved the terms of access to each other's markets, the equivalence between domestic rules, and the extraterritorial effects of those rules. Some of these disputes were also intra-E.U. disagreements, whenever the preferences of the United Kingdom were different from those of Continental countries and similar to those of the United States. The network structure of the financial industry and the patterns of financial interdependence across the Atlantic amplified the extra territorial effects of domestic reforms, but at the same time triggered an active involvement of the transnational financial industry in the management and, eventually, the settlement of these disputes.

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PONZI FINANCE AND THE HEDGE FUND INDUSTRY

Advances in Complex Systems ◽

10.1142/s0219525912500373 ◽

2012 ◽

Vol 15 (supp02) ◽

pp. 1250037

Author(s):

WILLI SEMMLER ◽

RAPHAELE CHAPPE

Keyword(s):

European Union ◽

Dynamic Model ◽

Asset Management ◽

Hedge Funds ◽

Hedge Fund ◽

Stochastic Dynamic ◽

The European Union ◽

Obama Administration ◽

Regulatory Frameworks ◽

Fund Industry

This paper presents a stochastic dynamic model that can be used to describe situations in asset management where hedge funds may inadvertently find themselves running a Ponzi financing scheme. Greater transparency is necessary to reduce such opportunities, such as audited financials, and disclosure of valuation methodologies. In that respect, new regulatory frameworks enacted by the Obama administration and the European Union are welcome developments.

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Direct or Indirect Regulation of Hedge Funds: A European Dilemma

European Journal of Risk Regulation ◽

10.1017/s1867299x00001549 ◽

2011 ◽

Vol 2 (4) ◽

pp. 463-480 ◽

Cited By ~ 5

Author(s):

Giorgio Tosetti Dardanelli

Keyword(s):

European Union ◽

Financial Crisis ◽

Systemic Risk ◽

Hedge Funds ◽

Hedge Fund ◽

Investment Fund ◽

The European Union ◽

Member States ◽

Fund Managers ◽

Eu Legislation

This paper deals with the debate on the methods to regulate hedge funds, with a particular focus on direct or indirect regulation. After having briefly examined the pros and the cons of directly regulating these investment schemes, it comes to the conclusion (largely shared by most scholars) that hedge funds should not be directly regulated, while regulation should concern their management companies and, most of all, their counterparts (lenders in the first place) with a view to managing systemic risk. In addition, regulation should also set precise thresholds for access which should aim at protecting unsophisticated investors from hazardous moves, without, however, falling into the trap of regulating hedge fund themselves.The attention is then turned to the European Union and to its Alternative Investment Fund Managers Directive (AIFMD). An analysis is conducted on some of the most significant approaches to hedge fund regulation which have fuelled (and are partly still fuelling) the debate within EU institutions in its struggle to provide Member States with a valid response to the financial crisis, and on some key provisions of the first level AIFMD. In this light the author concludes that, despite the declared intent to regulated fund managers, the directive often seems to regulate hedge fund themselves. This does not seem to be in line with the thoughts of most scholars and market operators on hedge fund regulation and also looks at odds with other pieces of EU legislation (in particular with the so-called “Newcits”).

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The European Union, Financial Crises and the Regulation of Hedge Funds: A Policy Cul-de-Sac or Policy Window?

Journal of Contemporary European Research ◽

10.30950/jcer.v4i3.130 ◽

2008 ◽

Vol 4 (3) ◽

pp. 167-178

Author(s):

David John Lutton

Keyword(s):

European Union ◽

Hedge Funds ◽

Financial Services ◽

Financial Crises ◽

Hedge Fund ◽

Regulatory Regime ◽

The European Union ◽

Political Actors ◽

Policy Window ◽

Ability To Act

A series of financial crises involving hedge funds has created a general perception that action needs to be taken. A number of key member states and political actors favour tighter regulation. Traditional bureaucratic theory suggests that the European Commission would seek to maximise this ‘policy window’, and yet there remains no single unified European Union (EU) regulatory framework specifically targeting hedge funds. The nature of the regulatory regime, which has generally demanded a ‘light touch’ approach, means there are strict limits the EU’s ability to act. From an EU perspective, hedge fund regulation appears to be a policy cul-de-sac. However, the relationship between hedge funds and financial crisis is complex and less straightforward than is often portrayed. Hedge fund regulation cannot, however, be considered in isolation but should be viewed in the context of a wider programme to integrate European financial services markets. Viewed from this perspective, EU regulation is in fact changing the landscape of the hedge fund industry through a process of negative integration.

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