Regulating Hedge Funds in the EU

Praised for enhancing the liquidity of the markets in which they trade and improving the corporate governance of the companies which they target and criticized for contributing to the instability of the financial system hedge funds remain the most controversial vehicles of the modern financial system. Unconstrained until recently by regulation, operating under the radar of securities laws and with highly incentivized managers, hedge funds have managed to attract ever-increasing amounts of capital from sophisticated investors and have attracted the attention of the public, regulators and politicians. The financial crisis of 2007-2008, the most severe financial crisis after the Great Depression, prompted politicians and regulators both in the U.S. and Europe to redesign the financial system. The unregulated hedge fund industry heavily criticized for contributing or even causing the financial crisis was one of the first to come under the regulator?s ambit. The result was the adoption of the Dodd-Frank Act in the U.S. and the Alternative Investment Fund Managers Directive in the European Union. These two pieces of legislation are the first ever attempt to directly regulate the hedge fund industry. Taking into account the exponential growth of the hedge fund industry, its beneficial effects and its importance for certain countries such as U.S and Luxembourg, one can easily understand the considerable impact of these regulations. A comparative and critical examination of these major pieces of regulation and their potential impact on the hedge fund industry in Europe and the U.S. is absent from the academic literature something completely excusable when considering that the Dodd-Frank was adopted in 2010 and the AIFM Directive in 2009. Our Phd thesis will attempt to fill this gap and offer a critical assessment of both the Dodd-Frank Act and the AIFM Directive and their impact on the hedge fund industry across the Atlantic. Furthermore, our thesis will seek to offer concrete proposals for the amelioration of the current EU regime with respect to hedge funds building upon US regulations.