Kaal claims by topic: economics

907 atomic, individually citable claims from the published work of Wulf A. Kaal tagged economics.

Bundling substantive corporate law together with adjudication, the arrangement that succeeded in Delaware, is likely to cause difficulties in Europe; Member States are most likely to succeed in post Centros and Inspire Art regulatory competition if they unbundle the corporate law product. 2004
Under the seat theory, competition with respect to corporate law alone is impractical, because a corporation cannot choose a state's corporate law without also locating its principal place of business there and thereby submitting to that jurisdiction's other laws. 2004
Even if the ECJ has embraced the incorporation theory, Member States can still frustrate Type B regulatory competition through tax law, capital market law, listing requirements and other mechanisms, so the seat theory may retain de facto dominance. 2004
Rule switching costs for a jurisdiction are probably higher when it must make substantial new demands on its courts in addition to changing its statutes, which raises the cost of competing with a bundled corporate law product. 2004
Regulatory competition for a bundled product of statutes plus courts is only a realistic possibility if relatively high supply side hurdles can be overcome to induce states to enter the market for corporate law. 2004
For an unbundled product of statutes only, the key to successful regulatory competition shifts from the supply side to the demand side: drafting statutes that appeal to large numbers of managers and investors outside the jurisdiction. 2004
The quality problems in Delaware adjudication mean it is not a foregone conclusion that the bundled product of statutes plus specialized courts leads to optimal results. 2004
With an unbundled product more Member States might participate in regulatory competition over corporate law, which would speed up the learning process and likely result in better substantive corporate law. 2004
Conflict of laws problems become more complex and pose a much greater threat to the entire system of regulatory competition once a jurisdiction markets its corporate law as a separate product under Type B competition. 2004
The success of Europe's experiment with Type B regulatory competition will turn largely on whether there is a clear understanding of what is corporate law and what is not. 2004
Europe has no equivalent of Delaware with which arbitration would have to compete, since incorporation theory is only beginning to take hold and no Member State has established a commanding lead in marketing its corporate law abroad. 2004
A uniform approach to hedge fund valuation is not possible because the variety of hedge fund investments and strategies means some positions, such as non-concentrated positions in liquid securities, are far easier to value than others. 2009
Broker quotes are an unreliable fallback for valuation: they can be hard to obtain and can vary by 20 to 30 percent for instruments such as mortgage-backed securities, which makes accurate valuation of those securities difficult. 2009
Existing international proposals and guidelines on hedge fund valuation fail because they do not adequately distinguish between retail and qualified investors, and as of 2009 no legislature has issued an exhaustive set of rules addressing the factors that cause inaccurate valuation. 2009
Valuation is very likely to become the next major issue for the hedge fund industry, because most jurisdictions lack regulatory oversight of valuation and the industry generally lacks self-discipline and internal controls. 2009
When hedge funds adopt private equity strategies by adding private companies to their portfolios, they exacerbate valuation problems, and the convergence of the two asset classes makes it more difficult to accurately assess the value of each. 2009
Because realization events for private equity investments occur infrequently, hedge fund managers have an incentive to avoid side pockets and to use estimated valuations for those investments instead. 2009
Because structured debt instruments and over-the-counter derivatives used by hedge funds can be highly complex, the hedge fund manager may be the only person competent to assess their value. 2009
Because net asset value drives subscriptions, redemptions, performance calculations, advertising, and fees, managers who both manage and value the portfolio have both an incentive and the ability to inappropriately over-value their portfolios. 2009
Independent administrators and valuation committees do not solve the independence problem for startup funds, because a majority of hedge funds in their startup phase try to keep overheads down and so may have independence problems precisely when independence is most crucial. 2009
Outsourcing valuation to an independent administrator can be nominal rather than real: the administrator may lack the understanding of complex securities products needed to value the positions, so the manager remains in charge of valuation even though the function has formally been externalized. 2009
There is an adverse selection problem in independent valuation: an administrator who actually had the knowledge and understanding of complex instruments required for the task would probably be incentivized to use that expertise in a more profitable setting instead. 2009
Valuing thinly traded assets with exchange quotes is unsound because the price for less frequently traded assets may not indicate fair market value at the time of valuation, yet nearly a quarter of surveyed funds relied exclusively on such quotes. 2009
Because new hedge fund managers concentrate on highly complex and profitable instruments where pricing and valuation problems are most prevalent, it becomes very difficult for managers to guarantee investors standard or accurate pricing procedures. 2009
The regulatory proposals that appeared soon after LTCM did not adequately take valuation problems into account. 2009
Although regulators and legislatures in many jurisdictions recognize that hedge fund issues affect retail investors, they have so far not addressed valuation and its interplay with retail investors. 2009
State de minimis investment adviser registration exemptions can be an attractive alternative to federal law for hedge fund managers, especially in a fund's start-up phase, because state registration would require an ADV filing and significant transaction costs the manager wants to avoid. 2009
Requiring hedge funds to supply risk and valuation data in a simplified format would in fact impose a significant burden on the industry, since simplification requirements would raise transaction costs, require pre-screening, and possibly additional staff. 2009
Investor suitability standards would address the sophistication problem by requiring independent verification that investors in highly complex financial products can evaluate investment risk independently and are capable of making independent investment decisions. 2009
Assimilation of US legal rules into European regulatory approaches may itself increase transaction costs for the jurisdiction that changes its law. 2010
In US securities class actions plaintiffs may proceed on the fraud on the market theory rather than proving actual reliance on misleading statements, an approach that has been rejected in most other countries. 2010
Applying section 10(b) and Rule 10b-5 together with the fraud on the market theory substantially increases the potential liability of issuers and can lead to questionable results, which is why EU jurisdictions may not want that rule applied to their securities markets. 2010
Legal uncertainty generates transaction costs, and European company boards will inevitably incur costs minimizing the information asymmetries created by different legal regimes that may or may not apply to their company. 2010
Non-US individuals and companies are expressly prohibited by US law from contributing to US political campaigns and have a relatively weak lobby in Washington, which places EU financial intermediaries at a competitive disadvantage in the US political system. 2010
The defendants harmed by section 7216 would almost all be non-US financial intermediaries and issuers who are less able to defend themselves in the US political system, which helps explain why Congress is not seriously considering repeal of the PSLRA but is seriously considering section 7216. 2010
If section 7216 is enacted, European plaintiffs and defendants will likely turn to the expertise of American law firms, which would further exacerbate the already difficult competitive situation of European law firms. 2010
Beliefs about whether markets fail are causally consequential rather than merely academic: bankers who believe markets fail invest more cautiously, and regulators who believe markets fail regulate more aggressively. 2010
Because U.S. companies historically financed themselves through markets rather than through each other, U.S. managers are less attuned to risks accumulating at other firms, a blind spot that mattered once swaps and other complex instruments made firms directly vulnerable to each other's conditions. 2010
The Dodd-Frank Act is notable for what it omits: it does not break up the largest banks, does little to help smaller and regional banks compete, and because compliance is burdensome and expensive may actually have raised the barrier to entry into financial services. 2010
Because of the political climate and concern about the social externalities of business failure, monitoring requirements and their enforcement procedures are likely to become more severe regardless of whether the increased monitoring costs are offset by fewer bad business decisions. 2010
The first trigger should be based on a threshold in market value rather than accounting measures, because a market value trigger avoids total reliance on accounting methods that are open to manipulation. 2011
Contingent capital securities are likely to be more efficient than raising capital requirements, because the capital arrives only when it is needed. 2011
Mandatory contingent capital issuance requires the creation of a new market, and market creation takes time: the European hybrid market established in 1997 needed five years to reach critical mass. 2011
A dual trigger that relies on a financial institution index gains from its use of market prices but is vulnerable to index manipulation and to bondholders attempting to force the institution into bankruptcy. 2011
Exchange uniform voting rights policies should not be applied to contingent capital securities, and the NYSE and Nasdaq would themselves benefit from an exemption because it could increase marketability and trading on each exchange. 2011
A substantial voting rights increase at the second trigger could raise the cost of contingent capital securities, with issuers demanding premiums that push primary issuance toward institutional investors interested in the change of control possibility. 2011
Contingent capital with increased voting rights delivers a more flexible and efficient outcome than Chapter 11, because it requires neither court involvement nor a threshold of creditor approval. 2011
Contingent capital is more efficient than prepackaged plans or preplan sales because it provides a resolution mechanism outside formal proceedings and free of their restrictions, since the Bankruptcy Code does not regulate conversion or the use of increased voting rights. 2011
Contrary to critics who blame the Basel Accords, harmonization through Basel II is not what made banks hold similar assets; banks held similar assets because those assets were profitable. 2011
Regulating entities that operate in the same markets under asymmetric rules creates legal uncertainty and significant transaction costs. 2011
Systemic risk and financial market stability are public goods, so individual banks free ride on other banks' hedge fund credit risk management and are not incentivized to adequately monitor or limit their own hedge fund risk exposure. 2011
A lack of regulatory guidance creates legal uncertainty, and legal uncertainty in turn generates transaction costs. 2011
Market failure in complex financial instruments, rather than hedge fund activity as such, could have been a contributing factor in the recent credit crisis. 2011
Although hedge funds manage only a small proportion of the investment universe compared with banks, they do manage a proportionally large part of complex financial instruments such as CDOs and other derivatives. 2011
British Bankers' Association data show that since 2000 hedge funds steadily increased their share of the credit derivatives market while banks' role in that market progressively declined. 2011
Legislators had disincentives to impose harsher requirements on the hedge fund industry before the crisis, because harsher regulation could have driven franchise taxes and other business to offshore centers. 2011
Implementing the hedge fund lending charge through Basel III would require no separate national implementation, because compliance falls on banks that have already joined the framework, so transaction costs for national regulators would be avoided. 2011
The economic reality of swap agreements does not justify fixing the location of the transaction in every case solely by reference to the market where the reference security trades, even though Judge Baer was right that the Porsche swaps were not U.S. transactions. 2011
The SEC study is very unlikely to produce an extraterritorial extension of private rights of action so long as Republicans control the House of Representatives. 2011
A clear and restrained U.S. approach to extraterritoriality will bring predictability to global securities markets and avoid a downturn in international economic cooperation. 2011
The German provision allowing appropriate compensation of shareholders whose rights are impaired can defeat the statute's own purpose, because time is of the essence in bank reorganization and the appointment of a court-appointed expert to value shareholder claims may significantly slow the procedure. 2012
Because German law fixes no threshold conditions or determining factors for market reception or market confidence, the systemic relevance and contagion determinations that turn on those factors can never be made in a reliable and objective manner. 2012
Requiring only that consideration be commensurate with the value of transferred assets invites frequent and significant disputes over valuation, a problem compounded when the consideration consists of shares in the bridge bank, whose own value must then also be assessed. 2012
Mandating the issuance of contingent capital does not guarantee that a viable market in contingent capital securities will develop. 2012
Building critical mass in the contingent capital securities market could require banks and other financial institutions to buy their competitors' contingent capital securities, which would raise ethical, antitrust and incentive concerns. 2012
Dual trigger proposals draw their central strength from reliance on market prices, but the index leg is a major disadvantage because it can create incentives to manipulate the index or to force an entity into bankruptcy before conversion occurs. 2012
Convergence of contingent capital standards is impeded by a first mover problem: single jurisdictions hesitate to impose contingent capital requirements before they know how competing jurisdictions and their financial institutions will structure their own rules. 2012
Without a degree of similarity and convergence in bank resolution and contingent capital rules, regulatory arbitrage will work against establishing contingent capital as an integral part of financial markets. 2012
The methodological assumptions of incomplete contract theory improve the analysis of executive compensation arrangements relative to the classical and spot contract models normally used. 2012
Regulatory triggers generate the highest level of uncertainty and can produce ad hoc regulatory decisions and adverse market responses, so they are not the best option for contingent convertible bonds in executive compensation. 2012
Market-based trigger measures are vulnerable to market manipulation and bank runs, while accounting-based measures are updated too infrequently to respond adequately in a financial crisis. 2012
Before conversion, contingent convertible bonds incentivize executives to lower risk-taking because their prices are sensitive to the downside risks of SIFIs, including default risk. 2012
Who owns the contingent convertible bonds affects the efficiency, effectiveness, and corporate governance results of a trigger design, so ownership characteristics belong in the design analysis. 2012
The authors stipulate that Choice of Law Competition is a subcategory of jurisdictional competition in which jurisdictions compete on substantive legal rules to attract contracting parties ex ante, with adjudication of disputes a secondary consideration. 2012
The authors stipulate that jurisdictions which take steps only to expand the jurisdiction of their courts as venues for litigation, rather than to attract transactions, engage in Forum Competition. 2012
Most Forum Competition turns on a jurisdiction's attractiveness to lawyers ex post: such jurisdictions ignore the preferences of transacting parties at the time of contracting and appeal only to the preferences of some parties and their lawyers after a dispute has arisen. 2012
Jurisdictional competition adapts legal rules to changed economic circumstances faster than harmonization does, because a single jurisdiction can change its rule unilaterally whereas harmonized regimes require all jurisdictions to agree on a rule before it can change. 2012
Harmonization can fail on the merits: the harmonious rule may be the wrong rule for the problem it addresses, or it may become the wrong rule later as circumstances change. 2012
Harmonization is politically unattainable absent either a central authority able to preempt the law of many jurisdictions or a single jurisdiction with enough economic clout to impose its rules on others, which makes harmonization especially difficult beyond national borders. 2012
Jurisdictional competition in global securities litigation after Morrison will be bifurcated, because some jurisdictions recognize private rights of action while others do not, and some, including the United States, extend government enforcement extraterritorially where private suits are barred. 2012
Because Section 929P did not restore private rights of action, the most powerful weapon in plaintiffs' arsenal, the fraud-on-the-market theory in class actions, is thwarted wherever the transaction took place outside the United States. 2012
The requirement that each plaintiff show individual reliance, followed in most jurisdictions outside the United States, is not merely a substantive difference: it undermines collective litigation because class procedures work only when plaintiffs share common questions of law and fact. 2012
Despite signs of movement in that direction, there is as yet no genuine European substitute for the U.S. securities class action brought under the fraud-on-the-market theory. 2012
The Dutch unfair trade practice and misrepresentation provisions invoked in Fortis, taken together, approximate the legal protections available in the United States under Section 10(b) and Rule 10b-5, which makes the Dutch legal system a possible avenue for circumventing the restrictions imposed by Morrison. 2012
Given the Fortis and Converium decisions, it is conceivable that Dutch courts will expand their extraterritorial reach beyond the enforcement of settlements to cases litigated as class actions. 2012
Because the Dutch Supreme Court's World Online presumption of reliance can be extended to ad hoc disclosure violations and misleading periodic reports, the Dutch legal system could compete effectively with the United States by lowering the crucial reliance threshold in securities actions. 2012
Canada could engage in Forum Competition with the United States if its courts allow suits under Canadian law over all transactions in securities listed for trading in Canada, even transactions executed in the United States, assembling a class of Canadian and U.S. investors that Morrison forbids in U.S. courts. 2012
If Forum Competition between the United States and Europe expands, the acceptable outer bounds of jurisdictional competition may eventually have to be defined by treaty or other multilateral agreement. 2012
Although many jurisdictions may protect investors less well than the United States, it is not at all certain that U.S. law does a better job of deterring securities fraud. 2012
Among the minority of advisers who do factor regulation into fund sizing, the pressure runs in both directions: about 25% would go smaller to avoid regulatory hassle while about 50% would grow or need a certain size to cover the increased expenses. 2012
Installing contingent capital can be more efficient than raising capital requirements, because the capital injection becomes available only when it is needed and only enough securities convert to recapitalize the firm. 2012
Trigger designs can be ranked by the certainty they give market participants: institution specific triggers presumably grant the most certainty, while regulatory trigger designs provide lower levels of certainty. 2012
Coupon rates between seven and nine and a half percent attracted sufficient investor interest in European contingent capital securities to establish what appears to be a sustainable market in those securities. 2012
The combination of demonstrated investor interest and an underdeveloped regulatory structure in the United States presents a unique opportunity to experiment with contingent capital designs and with their application to the corporate governance of systemically important financial institutions. 2012
The political economy of financial regulation ensures that the expansion of regulatory oversight induced by Dodd-Frank will be followed by a phase of relaxation, since historically the introduction of regulatory regimes after a crisis is followed by a gradual easing of regulatory strictures. 2012
Harmonization and coordination can facilitate experimentation and learning, but experimentation is most effective when several different approaches are tried simultaneously in different jurisdictions. 2012
Where jurisdictions are not compelled to agree on the same rule, some jurisdiction will try a different rule, and will do so more quickly, when changed economic circumstances make a different rule optimal. 2012
Treating the price of contingent capital securities as an indicator of how much people care about market integrity and moral hazard would require altruistic motives on the part of purchasers, and the author doubts this: the nascent market appears to have been built on investors' expectation of above average returns. 2012
Rather than banning purchases by systemically important institutions of each other's contingent capital, which could be detrimental to market evolution, the design should require disclosure of the purchaser's identity and approval by the issuer. 2012
Governance adjustments made through stable rules in reaction to a systemic shock can result in suboptimal governance outcomes, market volatility, and economic loss. 2013
A regulatory framework that relies exclusively on stable and presumptively optimal rules cannot adequately address future challenges, and the amendments, revisions, and retractions such a framework generates create substantial transaction costs and uncertainty. 2013
The aftermath of a financial crisis creates shock conditions that constitute a suboptimal environment for rulemaking. 2013
Post-crisis rulemaking occurs in an economic, political, and legal environment whose sense of urgency prevents a full evaluation of the consequences of new rules for all affected constituencies. 2013
The shock conditions that trigger calls for rulemaking have typically not been analyzed or absorbed systematically, so rulemaking under those conditions is associated with high levels of incomplete information. 2013
Financial regulation is characterized and controlled by a classic collective action problem, and as a consequence regulatory oversight is never constant. 2013
In the competition to shape financial policy through rulemaking, small and well organized special interest groups such as the financial industry dominate latent groups such as dispersed investors. 2013
During and after crises, political entrepreneurs assume the transaction costs of organizing otherwise disinterested latent groups, which temporarily overcomes the predominance of special interest groups in rulemaking. 2013
Once crises recede, regulatory oversight diminishes as societies and markets return to their prior equilibrium, and this dichotomy causes reform legislation and deregulatory legislation to be enacted in quick succession. 2013
Regulatory intensity is never constant: it increases after a market crash and then wanes as society and the market return to normalcy. 2013
The increasing volatility of financial markets combined with financial innovation parallels the pace of technological development in telecommunications, the industry where dynamic regulation has predominantly been applied. 2013
Dynamic financial regulation is the study of financial regulatory phenomena in relation to both preceding and succeeding events, by analogy to economic dynamics. 2013
Experimentation with different combinations of regulatory approaches is effective when several different approaches can be tried simultaneously in different jurisdictions. 2013
Contingent capital triggers have significant design limitations: accounting based triggers may not respond adequately in financial crises because they are updated too infrequently, while market based triggers are susceptible to market manipulation and bank runs. 2013
Dynamic regulation is an optimization process for the learning experience in the New Institutional Economics framework, describing intra- and inter-jurisdictional feedback effects between different public rulemakers and between private and public rulemakers. 2013
NIE acknowledges that transaction costs, imperfect information, and bounded rationality influence the rulemaking process, with the consequence that even optimal solutions to regulatory problems become unstable and suboptimal over time. 2013
Unenforceable rules are irrelevant for purposes of economic analysis because they provide neither incentives nor sanctions, and legal rules without enforcement mechanisms do not qualify as institutions in the NIE framework. 2013
Competition between legislators does not necessarily provide a feedback process in the sense of cooperation, but it nevertheless provides incentives for public rulemakers to consider regulatory solutions from other jurisdictions. 2013
Because competition between legislators requires public rulemakers to meet consumers' and legal addressees' quality expectations and preferences, it adds a dynamic and market-driven element with a feedback effect to the rulemaking process. 2013
Opportunistic behavior, transaction costs, and bounded rationality undermine comprehensive contracting, so contracting parties do not specify all of their respective obligations ex-ante because anticipating all contingencies is too costly. 2013
The learning process in incomplete contract theory can be improved because experimentation with different rules, rule revision, and additional rulemaking create significant transaction costs, and postponing rulemaking until sufficient information is available may not always be possible or desirable. 2013
Hedge funds' distressed and default debt investments in the United States grew dramatically over two decades, rising from roughly $70 billion in 1998 to roughly $867 billion in 2007. 2013
The proliferation of distressed-focused hedge funds gave hedge funds roughly one quarter of the total distressed-debt market and made the distressed-focused approach the fifth-largest hedge fund strategy. 2013
Under Revised Rule 2019, parties acting in concert must disclose not only equity holdings and claims but also derivative instruments such as swaps, options, and short positions. 2013
The central compromise in Revised Rule 2019 is that parties need not disclose the price or the date of acquisition of disclosable economic interests, which is precisely the outcome the hedge fund industry lobbied for. 2013
Boards are consistently held not liable for their companies' illegal marketing efforts even though federal law prohibits off-label marketing, but a board that certifies compliance with a CIA is certifying that the company properly monitors its sales teams' promotional activities, so CIAs contractually expand the applicable legal standard. 2013
CIA provisions create economic incentives that affect directors' diligence, because stipulated daily noncompliance penalties stacked on top of monetary penalties under federal health laws expose companies that executed CIAs to significant financial ramifications. 2013
Dynamic elements function as an economizing device: they address the scarcity of regulatory resources and lower the cost of rulemaking by curtailing the collective action problem in rulemaking, the resulting regulatory cycles, and trial and error rulemaking. 2014
Because transaction costs, imperfect information, and bounded rationality shape the rulemaking process, even solutions that are optimal at enactment become unstable and suboptimal over time. 2014
Under incomplete contract theory the rulemaking process is itself a learning process, and incomplete contracts are the instrument that carries that learning. 2014
A core tenet of incomplete contract theory, that rulemakers should act only when sufficient information becomes available, is often politically, economically, and practically undesirable or impossible. 2014
Experimentation with different rules under the current framework of stable rulemaking carries substantial costs of rule revision and enactment, and there is evidence that this framework does not protect against systemic shocks and financial crises. 2014
The inadaptability of stable and presumptively optimal rules intensifies competition between well organized special interest groups and latent groups, because inadaptable outcomes raise the stakes for both. 2014
Because a governmental contract is executed only after wrongdoing has been identified and assessed, the parties can contract for governance improvements with relative precision, which reduces the amount of institution specific experimentation required and its transaction costs. 2014
High quality private fund data is scarce because the industry's entrenched interest in confidentiality combined with decades of regulatory exemption from registration and transparency requirements left no reservoir of comparable disclosure to study. 2014
Respondents argued that the SEC's systemic risk objective would have been advanced more directly by asking a smaller set of targeted questions, emphasizing open derivatives positions, the entity's total market exposure, and its total underlying capital. 2014
Anecdotal evidence suggests that Title IV of the Dodd-Frank Act more than doubled the market entry threshold requirements for smaller hedge fund advisers. 2014
Before Title IV, launching a hedge fund could be accomplished by raising roughly $25 to $50 million, whereas after the Dodd-Frank Act the required initial amount may have risen to around $100 million. 2014
If the administrative and compliance costs created by Title IV disproportionally affect smaller hedge fund advisers, then over time smaller fund advisers could be forced out of the market or pushed to merge with other funds. 2014
The systemic risk of hedge funds arises principally from the combination of aggressive investment strategies and high leverage with adverse price movements that can dry up credit and depress the market price of collateral. 2014
Hedge funds threaten the financial system through two distinct channels: directly, by damaging systemically important financial institutions, and indirectly, by generating liquidity shocks and raising volatility in key markets. 2014
Stock prices respond significantly and predictably in a positive direction to the DOJ press release announcing execution of a non- or deferred prosecution agreement and to the start of the N/DPA term. 2015
The market does not price the three defining N/DPA events in isolation; it treats the announcement, the start of the term, and the end of the term as sequential and conditional events. 2015
There is no systematic price momentum beyond the three core N/DPA event dates, which the authors read as evidence that the market is reasonably efficient with respect to N/DPA information. 2015
The U.S. financial corporations subject to N/DPAs collectively exceed $690 billion in market capitalization and more than $20 trillion in assets under management, making N/DPA governance intervention economically consequential. 2015
The DOJ announcement is the only ascertainable point at which the market can assess the impact of the governance changes an N/DPA mandates, because the announcement typically accompanies release of the agreement document itself. 2015
Pre-announcement leaks about a pending N/DPA, including leaks by prosecutors, should not move markets significantly because leaked details carry no certainty or finality as to final terms or fine amount. 2015
The negative pricing of N/DPA firms immediately before the announcement reflects the market's negative assessment of the agreement and its associated fines, plausibly driven by uncertainty in the days before the announcement resolves it. 2015
The existing literature has barely engaged the financial market implications of N/DPAs, which is the gap this study fills. 2015
Growth in retail alternatives is expected to continue rather than plateau, with projections that 15.8 percent of all mutual fund assets under management will sit in alternative mutual funds by 2022, making it a multi-trillion dollar industry. 2016
Alternative funds gave retail investors access to hedge fund strategies and higher returns than traditional mutual funds while charging mutual fund fees, and that combination is what increased retail demand. 2016
The cost savings of the multimanager series trust model are a confluence mechanism: they let a growing number of smaller hedge fund advisers reach retail investors by launching a mutual fund. 2016
The subadvisory route leaves a regulatory gap: none of the mutual fund manager's obligations, such as daily valuation, public and SEC reporting, or independent boards, reach the private fund adviser serving as subadviser. 2016
Consumer choice adds a dynamic element to rulemaking because once consumers opt out of a suboptimal regulatory regime, public rulemakers in that jurisdiction can adjust their rulemaking in response, creating a feedback effect for the public rulemaker. 2016
Despite conflicting government reports, the weight of post-crisis evidence from leading financial economists supports the conclusion that hedge funds introduce at least some systemic risk into the financial system. 2016
Because hedge fund losses are absorbed directly by a large and dispersed body of investors and their equity capital, private fund advisers are unlikely to trigger a systemic event, and their activity may even reduce market volatility. 2016
Hedge fund losses large enough to affect the overall economy did not appear until after the crisis and recession had already been triggered by the mortgage market collapse and sustained stock market losses, which places hedge funds downstream of the crisis rather than at its origin. 2016
Market-neutral arbitrage strategies implicitly minimize systemic risk, because funds using them construct returns that do not depend on the direction of the market. 2016
The systemic risk of hedge fund leverage comes from its capacity to amplify liquidity losses and to contribute to asset overvaluation during bull markets, not from leverage as such. 2016
Risk measures that are not adjusted for serial correlation in hedge fund returns can considerably underestimate the true extent of both individual and systemic hedge fund risk, so empirical work in this area must account for autocorrelation. 2016
A market leader's failure to invest in disruptive technologies often results in an abrupt loss of market dominance and frequently in total replacement in that market. 2016
When disruptive firms do not comply with existing rules or effectively create their own exemptions because the existing framework does not reach them, public policy goals can be undermined and incumbent firms that remain subject to the rules suffer severe competitive disadvantages. 2016
The political system is less likely to be able to resolve the challenges of disruptive innovation because the increasing complexity of innovation-driven regulatory issues causes confusion among political and policy makers about rapidly emerging change. 2016
The authors concede that the trend for venture-capital-financed technology companies to stay private and the market undervaluation of formerly venture-capital-financed companies mean the innovation potential identified by venture capital finance allocation may not always be shared by the market at large. 2016
The emergence of hedge funds as short sellers should be viewed as a positive development because it eliminates some of the market overpricing that the high costs of short selling would otherwise sustain. 2016
There are no legal limits on hedge fund leverage; the only constraint comes from market discipline supplied by creditors and counterparties through interest rates, credit availability, credit limits, initial margin, and credit spreads. 2016
Alternative risk measures such as value at risk have severe measurement problems, so any direct regulation of leverage would be set conservatively and would substantially limit hedge funds' ability to provide market liquidity. 2016
Direct regulation of hedge fund leverage increases moral hazard costs, because lenders and counterparties relax their own vigilance once they rely on government rules to constrain fund risk taking. 2016
Banks are uniquely positioned to discipline hedge fund behavior because their role as lenders, market makers, and product creators lets them use the threat of cutting off future lending as leverage over a fund. 2016
Growth in the private fund industry has been concentrated among the largest advisers: assets managed by advisers with more than $5 billion in AUM grew 141 percent, compared with 53 percent for firms below $5 billion. 2016
As the private fund investor profile shifts toward institutional investors, fees fall; institutional investors made up 65 percent of hedge fund AUM in 2015 compared with roughly 20 percent a decade earlier. 2016
The private fund industry generated a disproportionate share of asset management profits: it produced 34 percent of the industry's 2013 profits, $31.2 billion of $93.0 billion, while controlling only 4 percent of total AUM. 2016
Barriers to entry for small firms are becoming an increasing problem in the private fund industry under the evolving post-Dodd-Frank legal environment, with references to such barriers rising from 24 percent of respondents in 2012 to 33 percent in 2015. 2016
The long-term effect of the Dodd-Frank Act on the private investment fund industry is likely to be characterized by increasing additional expenses and associated barriers to entry for new market entrants. 2016
The emergence of unconstrained mutual funds is driven by market forces: post-crisis structural and regulatory changes to the capital markets, a low interest rate environment, and the growth of private funds together created and then increased retail demand for alternative mutual funds. 2016
The complexity of unconstrained mutual fund trading has grown to the point that even leading professional analysts struggle to assess these funds' portfolios and their performance. 2016
Three features make it uniquely challenging for retail investors to evaluate the risks of unconstrained mutual funds: the lack of standard benchmarks, the recent emergence of the fund type, and the diversity and complexity of the strategies and risk exposures involved. 2016
Because an unconstrained mutual fund's performance is typically not assessed against any established benchmark, the retail investor must evaluate the fund without the contextual information routinely available for mutual funds pursuing more traditional credit strategies. 2016
The rising complexity of innovation driven regulatory issues confuses political and policy makers about rapidly emerging disruptive change, which makes a coherent political and policy solution to those challenges less likely. 2016
The authors concede a limitation of their own proposal: the innovation potential identified by venture capital finance allocation may not always be shared by the market at large. 2016
Market oversaturation increases pressure on private investment fund managers' performance and produces compromise fee arrangements such as charging fees on invested capital only. 2017
The current legal and administrative processes that support private equity are time consuming, expensive, lack transparency, and involve lengthy, duplicative, and fragmented investment and administrative processes. 2017
Larger managers will be incentivized to begin the innovation process if and when they realize that smaller competitors using these technologies gain substantial operational efficiencies and cost savings. 2017
The combination of increased transparency, reduced costs, and competitive performance enabled by blockchain use may confer a competitive advantage that continues to exert pressure on fees charged by competitor funds. 2017
Lower operating costs enabled by blockchain platform models will especially enable new and future managers to enter the market because start up and compliance costs can be significantly reduced. 2017
By enabling low set up requirements and low costs of running a portfolio, blockchain platform models may create an unprecedented competitive environment for asset management strategies. 2017
Blockchain technology lowers transaction costs by eliminating intermediaries, and it substitutes immutability and cryptography for the trust that intermediaries previously supplied. 2017
Blockchain enabled services should expect the same incumbent resistance that sharing platforms encountered, so technical viability will not by itself produce rapid market acceptance. 2017
Because blockchain is transparent, verifiable, self authenticating and self enforcing, financial transactions can be executed instantaneously at near zero transaction cost, which raises efficiency for businesses and individuals exponentially. 2017
The private fund industry contracted sharply in 2016: a total of 1,057 private investment funds closed down, exceeding the 1,023 liquidations of 2009 and falling just short of the record 1,471 closures in 2008. 2017
Per transaction fee models were previously impractical because settlement and calculation created a prohibitive amount of manual work; blockchain removes that barrier by automatically allocating the correct fee to the correct executed trade and client account without manual reconciliation. 2017
Blockchain enabled per transaction fees align fees with strategy turnover: clients in transaction intensive strategies agree upfront to higher fees while clients in less transaction rich strategies pay lower overall fees. 2017
The absence of regulatory recognition of blockchain technology is itself a source of harm: it creates significant uncertainty for the blockchain community and undermines the evolution of the crypto economy. 2017
Regulators cannot draft specific blockchain regulation because the risks, opportunities, and concrete outcomes of blockchain in reshaping financial markets are unpredictable. 2017
The SEC rejected the Winklevoss Bitcoin ETF application on the ground that the unregulated nature of Bitcoin made the proposed fund susceptible to fraud. 2017
By optimizing internal processes through blockchain technology, smaller investment fund managers gain unprecedented opportunities to compete with more established managers in markets previously dominated by larger players. 2017
Consistent with market fragmentation and disintermediation, smaller private investment fund managers have begun to erode the power of established market institutions such as banks and insurance companies. 2017
Because the public blockchain is public and immutable, the technology increases transparency while significantly reducing transaction costs, and intermediaries including lawyers are replaced by code, connectivity, crowd, and collaboration. 2017
Judging by the legal issues that arose around sharing platforms, blockchain-enabled sharing services will likely not be accepted quickly or without resistance from incumbents challenged by new ways of delivering a service or product. 2017
Companies should focus more on mentoring programs and less on formal evaluations, because mentorship with a superior manager helped minorities succeed. 2017
As minority attainment of bachelors and graduate degrees rises and labor markets tighten, a business imperative for hiring minorities will emerge because firms that expand their labor pool gain an advantage over firms with limited access to diverse workers. 2017