Title
Demystifying Hedge Funds: How High Is Your Fulcrum?
Abstract
Demystifying Hedge Funds: How High is Your Fulcrum? seeks to provide readers, who are generally familiar with mutual funds, a basic understanding of the structure and characteristics of “hedge” funds in their regulatory context, including investment company, investment adviser, securities law, and federal income tax regulation.. The article demonstrates how Congress and regulatory agencies expressed policies and designed rules to accommodate the needs of these registration exempt funds that the media frequently criticize for secretiveness and elitism. The article identifies and explains the two principle reasons for avoiding Investment Company Act registration: (i) incentive fees for investment advisers to the funds and (ii) no restrictions on borrowing to create leverage for the fund. The article contrasts hedge funds with other pooled, but registered, investment vehicles – mutual funds.
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