A semi-final word on hedge funds

I think the various positions on the hedge fund debate have been well aired, including in David Skeel's comments to the linked post.  I won’t unduly prolong the debate.  But I do have one general comment. The differences between, say, Oesterle, me and Steve Bainbridge, on the one hand, and Skeel and others who support the new hedge fund rules, on the other, concern philosophy rather than merely details.  How much evidence of effectiveness should we require, and how much cost are we willing to tolerate, as a condition of passing new rules?  This question applies to Sarbox, Regulation FD, independent directors, and a host of other issues.  The answer, in turn, comes down to different views about the bona fides of regulation and the effectiveness of market-based solutions.  This debate will continue, including on this blog.

Update: A quarter final word. Vic wants to know the defining characteristic of hedge funds.  That’s actually fairly easy – the defining characteristic is that they’re not regulated like mutual funds. This is a classic example of what I’ve called The Important Role of Non-Organization Law.  This isn’t the end of the theorizing – that would be how firms react to the different legal regimes.  But it should be the beginning.

Comments

[Victor]

Hi Larry. So, a venture fund is a hedge fund? I think you need to throw in a little more.

[Victor]

Strike that last comment (figuratively if not literally) -- I think I see what you're getting at now that I've refreshed my recollection about your argument in the Non-Organization piece. (In which case my venture vs. hedge fund point is pretty trivial.)

[Larry E. Ribstein]

Vic: No need to strike it. It gave me some pause, because I was trying to figure out a two-line response that would clarify what I meant. I gave up and hope that people will read the article.