# kaal:claim:3405660-032

**Claim.** By letting funds implement their own risk monitoring systems, indirect regulation avoids compliance costs that would otherwise threaten the profitability needed to justify the 2 and 20 fee structure to clients.

**Type.** mechanism  **Support.** argued

**Source quote.**

> Indirect regulation enables the hedge fund industry to avoid costs by implementing their own risk monitoring systems and measurements. Accordingly, indirect regulation helps address the danger that hedge funds might not be sufficiently profitable to justify their 2/20 fee structure to clients.

**From.** Kaal, *Indirect Regulation of Hedge Funds* (2019), V. Conclusion, page 25

**Cite as.** Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

**Verify.** sha256 of source PDF `cf507b1833071765bc13a5605f38c2591582eca85f40869e38b6ff075c04d29d` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202019%20-%20Indirect%20Regulation%20of%20Hedge%20Funds.pdf

**Topics.** compliance, private-funds

**Keywords.** compliance-costs, fee-structure, indirect-regulation, hedge-fund-profitability

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