May 22, 2006
Hedge funds and monitoring
Simply put, hedge funds facilitate investors who are relatively uninformed, to make portfolio choices that enhance their investment value. The competitive nature of the market ensures that the pricing is relatively efficient. However, it is the volume of money in the market that makes the Federal Reserve and enforcement agencies a bit jittery and that is understandable.
Probably what is needed is a little tweaking of the market rules. While the ability of hedge funds to operate across different market sectors makes them ensure the fairness of prices across different market contexts and various margins for pricing, it probably isn’t enough. There are certain systemic risks that have the ability to cause losses to the partners involved. Hence they need to be eliminated and that can be done by getting the various parties involved in the hedge fund market, to help the authorities thrash out a solution that is acceptable to everyone.
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