corporate governance and hedge strongfund managementstrong.pdfVIP

Corporate Governance and Hedge Fund Management Bruce N. Lehmann Graduate School of International Relations and Pacific Studies, University of California at San Diego and National Bureau of Economic Research, Cambridge, MA 02138 USA Abstract The central tenet of this paper is that one should look to the asset menu to understand the corporate governance issues associated with hedge funds. Most hedge funds fall into one of two categories: those that engage in proprietary trading and those that are more private-equity-like. Most are organized as limited partnerships or as groups within public companies that function in a manner similar to such partnerships. On this view, the governance issues associated with hedge funds are best understood by asking why they are not structured as some other type of private partnership, not why they are not a mutual fund. 1. Introduction It would appear to be obvious that the right way of thinking about the governance issues associated with hedge funds is to think of them as mutual funds or money managers. Hedge funds differ from other managed portfolios in a number of dimensions, including the restriction of sales to qualified – that is, high net worth or institutional – investors, lower transparency due to reduced reporting requirements, difficulties in marking assets to market when they are highly illiquid (as is frequently the case), and the widespread use of leverage to name a few. The Securities and Exchange Commission clearly thinks of hedge funds as a type of closed end mutual fund, albeit ones not covered by all provisions of the Investm