Hedge funds and jurisdictional competition

From Dealbook:

California has backed away from a controversial proposal to regulate hedge funds under strong opposition from its hedge fund industry. . . . California withdrew its proposal this month after many hedge fund industry officials suggested the lightly regulated investment funds could move to another state if California started regulating them.

Yes, and they would take with them all those huge houses, big cars and taxes paid by hedge fund managers. I previously discussed Connecticut's similar conundrum.

California is used to having its regulatory way because many firms can’t avoid its market. But hedge funds can operate just fine without California. So California is learning the same lesson that the U.S. did after SOX (and would learn again if it clamped down on hedge funds).

The general theory is in my Erin O’Hara’s Corporations and the Market for Law, and in our forthcoming book, The Law Market.