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See detailRegulatory Arbitrage and Hedge Fund Regulation: A Need for a Transnational Response?
Nabilou, Hossein UL

in Fordham Journal of Corporate & Financial Law (2017), 22(2),

Hedge funds, as paragons of exploiting regulatory discrepancies, are heavily criticized for thwarting regulatory efforts to address systemic risk. This paper investigates arbitrage seeking behavior of ... [more ▼]

Hedge funds, as paragons of exploiting regulatory discrepancies, are heavily criticized for thwarting regulatory efforts to address systemic risk. This paper investigates arbitrage seeking behavior of hedge funds in the globally-fragmented financial regulatory framework. Regulatory arbitrage is viewed as an indispensible element of regulatory competition, which plays a significant role in delivering the benefits of regulatory competition by providing regulatory substitutes for regulated firms, thereby increasing the elasticity of demand for regulators and engendering regulatory accountability. Despite its benefits, regulatory arbitrage involve costs. Market discipline can constrain the negative externalities of regulatory arbitrage, however, this paper argues that due to certain idiosyncratic features of the hedge fund industry, such as sophistication of investor base, higher attrition rate, and lack of transparency, market discipline by itself cannot fully address the potential externalities of regulatory arbitrage by hedge funds. These features weaken market signals and reduce the reputational advantages of being subject to high-quality regulation. The lower reputational costs in turn reduce the overall costs of regulatory arbitrage for hedge funds compared with mainstream financial institutions, which makes it more likely for hedge funds to engage in regulatory arbitrage than other mainstream financial institutions do. In a departure from the mainstream research, which recommends regulatory coordination, cooperation, harmonization, and consolidation as legal remedies to address problems originating from regulatory arbitrage by hedge funds, this paper argues that such proposals are at best misguided and at worst systemic risk amplifier. Instead, this paper suggests that to reduce the likelihood of regulatory arbitrage, instead of regulating hedge funds directly, the strategies for regulating hedge funds should focus on indirect regulation of hedge funds through their counterparties, creditors and investors for which reputational costs of regulatory arbitrage tend to be significantly high. [less ▲]

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See detailA COMPARATIVE EXAMINATION OF PRIVATE EQUITY IN THE UNITED STATES AND EUROPE: ACCOUNTING FOR THE PAST AND PREDICTING THE FUTURE OF EUROPEAN PRIVATE EQUITY
Seretakis, Alexandros UL

in Fordham Journal of Corporate & Financial Law (2013), 18(3),

Private equity has transformed from a small asset class into a major player in the global economy. Despite being a U.S. invention, the private equity model has also managed to spread throughout Europe ... [more ▼]

Private equity has transformed from a small asset class into a major player in the global economy. Despite being a U.S. invention, the private equity model has also managed to spread throughout Europe. Recently, the spotlight has been put on the private equity industry for a number of reasons: the recent financial crisis; the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the U.S. and the Alternative Investment Fund Managers Directive in the E.U.; and the run of Mitt Romney, founder of the prestigious U.S. private equity firm Bain Capital, for President of the United States. Despite this attention, a comparative examination of private equity regulation is absent from academic literature. This paper seeks to fill that gap and offers a comparative assessment of the legal framework governing private equity firms and transactions in both Europe and the U.S. This comparative examination will reveal that Europe has a particularly restrictive legal environment, which one would assume would inhibit European private equity activity and cause it to substantially lag behind the U.S. Nonetheless, underlying economic forces have provided and continue to provide a boost to the European market, allowing Europe to compete with the U.S. on an equal footing. Unraveling these underlying economic forces shall be the other major goal of this paper. When it comes to European private equity, there is no causation between the strictness of the legal regime and economic development. Rather, economic development shapes its own path and is unaffected by the prevailing legal regime. [less ▲]

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