Madoff-Proofing the Hedge Funds

In 2007, politicians considered regulating hedge funds before the funds fired up their lobbyists and effectively killed any legislation. Might the Bernard Madoff scandal be new impetus for regulation? The Financial Times reports that after Madoff, “hedge funds are bracing themselves for a raft of more stringent requirements by investors and increasing regulatory scrutiny.” Hedge fund of funds, which invest only in other investment funds, are most likely to be targeted, and they hold more than 40 percent of all hedge-fund money. Many consider the use of third-party administrators, which will value assets and create investor statements, as the most likely regulation. “This is just the start,” said one hedge-fund adviser. “Third party administrators, greater transparency in investments, more regulatory oversight—we can expect them all.”