# Hedge funds `kaal:entity:hedge-funds` **Status.** derived This node is assembled mechanically from the 82 claims that carry the concept tag `hedge-funds`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself. ## Every claim under this term 82 claims across 17 works, 2011 to 2019. **2011** - [1806252-007](https://wulfkaal.github.io/claims/1806252-007) [mechanism/argued] -- Hedge fund managers subjected to stricter rules in one jurisdiction while competing with funds in less restrictive jurisdictions could be placed at a comparative disadvantage. > If hedge fund managers are subjected to stricter rules in one jurisdiction while competing for clients and profit margins with funds in jurisdictions that impose less restrictive rules, they could be at a comparative disadvantage. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1806252-009](https://wulfkaal.github.io/claims/1806252-009) [failure/argued] *(failure mode)* -- Regulators who obtain hedge funds' proprietary information could inadvertently pass it to third parties, and because that information is highly valuable to competitors in the same markets, such leakage could undermine trading strategies and the long-term viability of hedge funds. > The confidential nature of this information makes it highly valuable for third parties who engage in the same markets as the owner of the proprietary information, and this form of leakage could undermine trading strategies and the long-term viability of hedge funds. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1806252-019](https://wulfkaal.github.io/claims/1806252-019) [mechanism/argued] *(failure mode)* -- Because the AIFM Directive exposes depositaries to strict liability in certain circumstances, depositaries must weigh the risks and benefits of serving EU alternative investment funds, and a negative assessment would harm the depository business and, implicitly, hedge funds. > If this risk assessment turns out negative, the business of depositories and, implicitly, hedge funds could be affected. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1806252-022](https://wulfkaal.github.io/claims/1806252-022) [empirical/evidenced] -- 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. > However, it appears that hedge funds do manage a proportionally large part of complex financial instruments, such as CDOs and other derivatives. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1806252-023](https://wulfkaal.github.io/claims/1806252-023) [empirical/evidenced] -- 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. > Table 1 shows that since 2000, hedge funds have steadily increased their share in the credit derivatives market while banks' role in the market for credit derivatives has progressively declined. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1806252-034](https://wulfkaal.github.io/claims/1806252-034) [condition/argued] -- Without the threat of systemic risk and without a clear delineation of the social externalities that hedge funds cause, the purpose of direct hedge fund regulation is unclear. > Without the threat of systemic risk and without a clear delineation of social externalities caused by hedge funds, the purpose of direct hedge fund regulation is unclear. Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252 - [1908473-026](https://wulfkaal.github.io/claims/1908473-026) [failure/argued] *(failure mode)* -- Sequential triggers invite manipulation of the triggering events and abusive practices such as asset stripping near bankruptcy, a risk the contract or corporate charter can counter by imposing a mandatory holding period on contingent capital securities. > manipulation of the sequential triggering events and abusive practices, such as asset stripping in the vicinity of bankruptcy. To avoid such practices, the CCS contract or the charter of the corporation could require a mandatory holding period for CCS. Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473 **2012** - [2150377-001](https://wulfkaal.github.io/claims/2150377-001) [mechanism/asserted] -- Freedom from supervision and disclosure obligations was functional rather than incidental for hedge funds: it enabled successful fund launches, helped generate higher returns, and attracted investors, which is why manager registration is contested. > Hedge funds' ability to invest in global markets without supervision and significant disclosure obligations was important for successful hedge fund launches, helped generate higher returns, and attracted investors. Wulf A. Kaal, Hedge Fund Manager Registration Under the Dodd-Frank Act (2012). SSRN: https://ssrn.com/abstract=2150377 - [2150377-002](https://wulfkaal.github.io/claims/2150377-002) [empirical/argued] -- The immediate deregistration of hedge fund advisers following Goldstein v. SEC is revealed-preference evidence of the industry's opposition to registration and disclosure requirements, not merely a technical response to the vacatur. > The advisers' decision to deregister in 2006 seems to confirm the industry's opposition to registration and disclosure requirements. Wulf A. Kaal, Hedge Fund Manager Registration Under the Dodd-Frank Act (2012). SSRN: https://ssrn.com/abstract=2150377 **2013** - [2348463-001](https://wulfkaal.github.io/claims/2348463-001) [empirical/evidenced] -- There is a substantial overlap between the systemic risk disclosure requirements imposed on hedge fund advisers under Title IV of the Dodd-Frank Act and the disclosure requirements under the fully revised version of Bankruptcy Rule 2019. > The author provides evidence of a substantial overlap between systemic risk disclosure requirements under Title IV and the disclosure requirements under the fully-revised version of Bankruptcy Rule 2019 (Revised Rule 2019). Wulf A. Kaal, Hedge Funds’ Systemic Risk Disclosures in Bankruptcy (2013). SSRN: https://ssrn.com/abstract=2348463 - [2348463-003](https://wulfkaal.github.io/claims/2348463-003) [empirical/evidenced] -- 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. > distressed and default debt investments in the United States have increased dramatically in the last two decades (from around $70 billion in 1998 to around $867 billion in 2007). Wulf A. Kaal, Hedge Funds’ Systemic Risk Disclosures in Bankruptcy (2013). SSRN: https://ssrn.com/abstract=2348463 - [2348463-006](https://wulfkaal.github.io/claims/2348463-006) [predictive/argued] -- The threat of systemic risk disclosure, combined with rising competition in the distressed-debt market, could further incentivize hedge fund managers to cooperate in the bankruptcy process. > The threat of disclosure of systemic risk filings in combination with increasing competition in the distressed-debt market could further incentivize hedge fund manager cooperation in the bankruptcy process. Wulf A. Kaal, Hedge Funds’ Systemic Risk Disclosures in Bankruptcy (2013). SSRN: https://ssrn.com/abstract=2348463 - [2348463-030](https://wulfkaal.github.io/claims/2348463-030) [mechanism/argued] -- The threat that hedge fund managers' systemic risk filings could be publicly disclosed could help incentivize hedge fund investors to abstain from trading while serving on a creditors' committee and to avoid holding multiple offsetting positions in distressed entities. > The threat of public disclosure of hedge funds managers' systemic risk filing could help incentivize hedge fund investors to abstain from trading while on a committee. Wulf A. Kaal, Hedge Funds’ Systemic Risk Disclosures in Bankruptcy (2013). SSRN: https://ssrn.com/abstract=2348463 **2014** - [2389416-001](https://wulfkaal.github.io/claims/2389416-001) [definitional/asserted] -- Title IV of the Dodd-Frank Act represents the most significant regulatory change in the history of the hedge fund industry, imposing mandatory adviser registration and disclosure for the first time since the industry's inception. > Title IV of the Dodd-Frank Act introduced the most significant regulatory change in the history of the hedge fund industry. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-004](https://wulfkaal.github.io/claims/2389416-004) [mechanism/evidenced] -- Strategic behavior by fund advisers around the assets under management registration threshold produces a strong increase in the measured discontinuity at that threshold. > Strategic actions by fund advisers lead to a strong increase in the discontinuity around the AUM registration threshold. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-006](https://wulfkaal.github.io/claims/2389416-006) [empirical/evidenced] -- Analyst estimates place the annual cost of Dodd-Frank Act registration and disclosure compliance for hedge fund advisers in a range from $50,000 to $400,000 per year. > Some analysts estimate that the cost will range from $50,000 to $400,000 per year (Kaal 2013a and 2013b). Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-012](https://wulfkaal.github.io/claims/2389416-012) [empirical/evidenced] -- The working sample consists of 2,145 hedge funds drawn from Morningstar data on roughly 7,000 hedge funds and more than 3,700 advisers, retaining only funds reporting complete monthly earnings and AUM from January to October 2012. > Due to missing data and the presence of outliers, we extract a sample of 2,145 hedge funds that report all the monthly earnings data and monthly AUM in each period from January to October 2012. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-013](https://wulfkaal.github.io/claims/2389416-013) [empirical/evidenced] -- Only about a fifth of the sample funds exceed the $150 million AUM registration threshold: roughly 79 percent of the 2,145 funds are below it, 17 percent are consistently above it, and 4 percent float across it. > About 79% of the entire sample of 2145 hedge funds consists of funds with AUM smaller than $150 million. Only 17% represents the "Large" subsample and 4% the "Strategic" subsample. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-014](https://wulfkaal.github.io/claims/2389416-014) [empirical/evidenced] -- Most of the 87 strategic funds keep their AUM very close to the $150 million disclosure threshold, oscillating around it rather than moving decisively above or below it. > We notice that only few hedge funds sensibly decrease or increase their AUM under or above the threshold and then keep such position. Most funds in the sample have AUM very close to the threshold, with oscillations around it. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389416-030](https://wulfkaal.github.io/claims/2389416-030) [empirical/evidenced] -- Unlike the entire sample, whose discontinuity coefficient is near zero except in March 2012, the strategic subsample shows a discontinuity coefficient that is always above zero across the sample months. > While the entire sample has a value always very close to zero, except for March 2012, the strategic subsample has a value always above zero. Wulf A. Kaal, Barbara Luppi, Sandra Paterlini, Did the Dodd-Frank Act Impact Hedge Fund Performance (2014). SSRN: https://ssrn.com/abstract=2389416 - [2389423-001](https://wulfkaal.github.io/claims/2389423-001) [empirical/evidenced] -- This study finds no evidence of an inverse relationship between the size of regulated hedge fund advisers and the per-unit cost of compliance, contrary to the common complaint that financial regulation brings increasing returns to scale. > The author finds no evidence of an inverse relationship between the size of regulated hedge fund advisers and the per-unit cost of compliance. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-002](https://wulfkaal.github.io/claims/2389423-002) [empirical/evidenced] -- The cost of Title IV compliance, and the other independent variables used as proxies for compliance cost, are associated with the size of hedge fund advisers as measured by assets under management. > The cost of Title IV compliance and other independent variables as proxies for cost are associated with the size of hedge fund advisers as measured by assets under management (AUM). Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-003](https://wulfkaal.github.io/claims/2389423-003) [empirical/asserted] -- Anecdotal evidence suggests that Title IV of the Dodd-Frank Act more than doubled the market entry threshold requirements for smaller hedge fund advisers. > Anecdotal evidence suggests that Title IV more than doubled the market entry threshold requirements for smaller hedge fund advisers. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-004](https://wulfkaal.github.io/claims/2389423-004) [empirical/asserted] -- 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. > Setting up a hedge fund before the enactment of Title IV could be accomplished by raising around $25-50 million. After the enactment of the Dodd-Frank Act, this number may have increased to around $100 million. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-005](https://wulfkaal.github.io/claims/2389423-005) [condition/asserted] *(failure mode)* -- Below $100 million in initial assets under management, the administrative cost of running a hedge fund in a post Dodd-Frank environment could be prohibitive. > Below $100 million in initial assets under management (AUM), the administrative cost of running a hedge fund in a post Dodd-Frank environment could be prohibitive (Kaal [2013]). Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-007](https://wulfkaal.github.io/claims/2389423-007) [predictive/argued] -- A disproportionate effect of Title IV on startup hedge funds and smaller advisers could create barriers to market entry and precipitate a trend toward consolidation among smaller hedge fund advisers. > A disproportionate effect of Title IV on startup hedge funds and smaller advisers could create barriers to market entry and precipitate a trend toward consolidation among smaller hedge fund advisers. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-010](https://wulfkaal.github.io/claims/2389423-010) [empirical/argued] -- Because there is no evidence of an inverse relationship between adviser size and per-unit compliance cost, industry concerns over the effect of Title IV compliance cost and possible barriers to entry for smaller funds and startups appear unjustified. > Accordingly, industry concerns over the effect of Title IV compliance cost and possible barriers to entry for smaller funds and startups seem to be unjustified. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-014](https://wulfkaal.github.io/claims/2389423-014) [empirical/argued] -- The study's core hypothesis, drawn from the industry view and the anecdotal evidence, is that smaller hedge fund advisers pay more relative to their size than larger hedge fund advisers for Title IV compliance. > Hypothesis: Dodd-Frank Effect on Hedge Fund Category. Smaller hedge fund advisers pay more relative to their size than larger hedge fund advisers for Title IV Compliance. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-015](https://wulfkaal.github.io/claims/2389423-015) [empirical/evidenced] -- Prior work shows that registration and the increased compliance requirements under the Dodd-Frank Act only marginally increase the cost structure of hedge funds. > requirements under the Dodd-Frank Act marginally increase the cost structure of hedge funds (Kaal [2013]). Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-018](https://wulfkaal.github.io/claims/2389423-018) [mechanism/argued] -- Because Form PF requires less information from single strategy advisers, hedge fund advisers that apply only a single strategy to their portfolios may incur overall lower compliance cost. > Accordingly, hedge fund advisers that apply only a single strategy to their respective portfolios may incur overall lower compliance cost. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-024](https://wulfkaal.github.io/claims/2389423-024) [empirical/evidenced] -- In the open ended survey question on the effects of Title IV, 43.59 percent of respondents, the largest group, said the industry would be affected predominantly by increased costs. > Exhibit 1 illustrates that an overwhelming majority of respondents (43.59%) opined that the industry would be affected predominantly by increased costs. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-025](https://wulfkaal.github.io/claims/2389423-025) [empirical/evidenced] -- The majority of survey respondents believed that Title IV compliance costs $100,000.00 annually. > The majority of respondents believed that Title IV compliance costs $100,000.00 annually. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-026](https://wulfkaal.github.io/claims/2389423-026) [empirical/evidenced] -- The most common fund adviser response, at 47.67 percent of the 86 respondents to the question, estimates the annual compliance cost of Title IV in the range of $50,000 to $100,000. > The most common fund adviser response (47.67%) estimates the annual compliance cost of Title IV in the range of $50,000 - $100,000. The total number of respondents who answered Question 6bi was 86. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-027](https://wulfkaal.github.io/claims/2389423-027) [empirical/evidenced] -- On the median annual time measure for Title IV compliance, 46 percent of respondents estimated between 100 and 250 hours per year and 32 percent estimated between 250 and 500 hours per year. > 46% of respondents opined that it would take them between 100 and 250 hours to comply with requirements in Title IV. 32% of respondents believed it would take them between 250 and 500 hours per year. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-028](https://wulfkaal.github.io/claims/2389423-028) [empirical/evidenced] -- The clear majority of respondents prefer an asset size above the $150 million AUM registration threshold after the enactment of Title IV, indicating that advisers respond to the threshold by growing past it rather than staying below it. > The clear majority of respondents prefer an assets size above the registration threshold of $150 million AUM. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-029](https://wulfkaal.github.io/claims/2389423-029) [empirical/evidenced] -- The compliance and administrative costs created by Title IV of the Dodd-Frank Act are associated with the size of hedge fund advisers' assets under management. > Exhibits 11-13 show that the compliance and administrative costs created by Title IV of the Dodd-Frank Act are associated with the size of hedge fund advisers' AUM. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-031](https://wulfkaal.github.io/claims/2389423-031) [empirical/evidenced] -- Compliance costs per unit of AUM do not diminish in the entire sample or in the multi strategy subsample, so there is no support for the hypothesis that smaller advisers bear relatively higher Title IV compliance cost. > Compliance costs per unit AUM do not diminish in the entire sample and in the multi strategy subsample. There is thus no support for the hypothesis. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-034](https://wulfkaal.github.io/claims/2389423-034) [empirical/argued] -- The results suggest that the private fund industry may be more robust and less affected by financial regulation than other financial services providers. > The results suggest that the private fund industry may be more robust and less affected by financial regulation than other financial services providers. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2389423-036](https://wulfkaal.github.io/claims/2389423-036) [empirical/evidenced] -- While all coefficients are positive in the entire sample and the multi strategy subsample, the negative coefficients in the single strategy subsample suggest that the strategy employed by a hedge fund adviser could change the assessment of the effect of compliance cost. > the negative coefficients in the single strategy subsample in Exhibit 12 suggest that the strategy employed by hedge fund advisers could change the assessment of the effect of compliance cost on the hedge fund industry. Wulf A. Kaal, The Impact of Dodd-Frank Act Compliance Cost on the Hedge Fund Industry (2014). SSRN: https://ssrn.com/abstract=2389423 - [2470008-003](https://wulfkaal.github.io/claims/2470008-003) [empirical/evidenced] *(failure mode)* -- Prior studies and anecdotal evidence indicate that the data collection mandated by Form PF could itself create problems for the FSOC when it evaluates hedge fund systemic risk. > Several observations from previous studies and anecdotal evidence suggest that the mandated data collection in Form PF could create issues for FSOC in evaluating the systemic risk of hedge funds. Wulf A. Kaal, The Systemic Risk of Private Funds after the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2470008 - [2470008-005](https://wulfkaal.github.io/claims/2470008-005) [mechanism/argued] -- 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. > Hedge funds' systemic risk is mainly the result of their pursuit of aggressive investment strategies and a significant level of leverage in combination with adverse fluctuations in market prices that can dry up credit and negatively affect the market price of collateral. Wulf A. Kaal, The Systemic Risk of Private Funds after the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2470008 - [2470008-006](https://wulfkaal.github.io/claims/2470008-006) [mechanism/argued] -- 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. > In addition to posing a direct systemic risk by damaging systemically important financial institutions, hedge funds can also pose an indirect threat to the financial system by generating a liquidity shock and increasing market volatility in key markets. Wulf A. Kaal, The Systemic Risk of Private Funds after the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2470008 - [2470008-012](https://wulfkaal.github.io/claims/2470008-012) [empirical/evidenced] -- National regulators reached opposite conclusions on the same question: unlike the OFR, FSB and IOSCO, the United Kingdom's Financial Services Authority concluded from its first comprehensive survey of London's hedge fund industry that the industry poses no systemic risk. > In contrast with the OFR, FSB and IOSCO, the Financial Services Authority (FSA) in the United Kingdom concluded in its first comprehensive survey of London's hedge fund industry that the hedge fund industry poses no systemic risk to the financial system. Wulf A. Kaal, The Systemic Risk of Private Funds after the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2470008 - [2470008-013](https://wulfkaal.github.io/claims/2470008-013) [mechanism/argued] -- The absence of financial market repercussions from the Amaranth failure suggests that indirect regulation of private funds, achieved by having regulators press banks to limit leverage extended to their fund clients, worked. > The lack of financial market repercussion after the Amaranth failure seems to suggest that this approach was successful. Wulf A. Kaal, The Systemic Risk of Private Funds after the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2470008 **2016** - [2714974-001](https://wulfkaal.github.io/claims/2714974-001) [mechanism/asserted] -- The originators of the earliest U.S. hedge funds deliberately structured the funds to maximize trading freedom by minimizing exposure to federal regulation, so the industry's private, unregistered form was a design choice rather than an accident of history. > The originators of the early funds designed the funds to maximize their freedom to employ complex trading strategies by minimizing their exposure to regulation under various federal statutes. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2714974-004](https://wulfkaal.github.io/claims/2714974-004) [mechanism/asserted] -- Expanding the client counting safe harbor in 1997 to cover legal entities generally allowed investment advisers to manage large amounts of securities indirectly for several hundred investors across multiple hedge funds without registering. > This safe harbor allowed investment advisers to manage large amounts of securities indirectly for several hundreds of investors in several hedge funds. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2714974-024](https://wulfkaal.github.io/claims/2714974-024) [normative/argued] -- 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. > Hedge funds' emergence as short sellers can be viewed as positive, eliminating some of the market overpricing due to the high costs of short selling. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2714974-030](https://wulfkaal.github.io/claims/2714974-030) [predictive/asserted] -- Proposals for indirect regulation of hedge funds through the regulation of the financial institutions that interact with them are unlikely to become legally binding. > Such proposals are unlikely to become legally binding. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2714974-031](https://wulfkaal.github.io/claims/2714974-031) [mechanism/argued] -- 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. > Because of their interaction with hedge funds, banks are uniquely positioned to use the threat of cutting off future lending to improve a hedge fund's behavior. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2715083-001](https://wulfkaal.github.io/claims/2715083-001) [definitional/argued] -- Confluence between mutual and hedge funds runs in two directions at once: mutual funds are converging on hedge funds along the dimension of investment strategy, while hedge funds are converging on mutual funds along the dimension of regulation. > Mutual funds are becoming more like hedge funds as a matter of investment strategy while hedge funds are becoming more like mutual funds as a matter of the regulatory framework. Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2715083-005](https://wulfkaal.github.io/claims/2715083-005) [empirical/evidenced] -- The private fund industry grew 26 percent between 2013 and 2015, rising from just over 2 trillion dollars of assets under management to 2.7 trillion dollars. > Between 2013 and 2015, the private fund industry grew by 26%, increasing from just over 2 trillion dollars AUM in 2013 to 2.7 trillion dollars AUM through 2015 Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2715083-010](https://wulfkaal.github.io/claims/2715083-010) [mechanism/argued] -- Operating a mutual fund is materially more capital intensive than operating a hedge fund: the mutual fund adviser's required investment in trading and operational technology and in specialized staffing substantially exceeds what a hedge fund manager must spend. > the size of the investment in trading and operational technology and in experienced portfolio management, trading, reporting, operational, risk management, and other staffing incurred by a mutual fund adviser is materially larger than what a hedge fund manager must expend to operate its business. Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2715083-012](https://wulfkaal.github.io/claims/2715083-012) [failure/argued] *(failure mode)* -- Hedge fund investors have almost no statutory remedy: the regime establishing a hedge fund investor's rights is severely limited, nearly to the point of nonexistence, in the United States and in the offshore jurisdictions where many hedge funds are chartered. > because the statutory regime establishing a hedge fund investor's right is severely limited,23 almost to the point of non-existence Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2715083-016](https://wulfkaal.github.io/claims/2715083-016) [mechanism/argued] -- Freedom from significant regulatory oversight is what historically enabled hedge funds to run more exotic, more leveraged strategies aimed at absolute returns. > Without significant regulatory oversight, hedge funds were able to employ more exotic investment strategies involving more leverage to generate absolute returns for their investors. Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2715083-025](https://wulfkaal.github.io/claims/2715083-025) [mechanism/evidenced] -- For the first time in the industry's history, the Dodd-Frank Act required most hedge fund advisers to register with the SEC, mandating disclosure of information previously treated as proprietary and private. > For the first time in the history of the hedge fund industry, the Dodd-Frank Act required most advisers to hedge funds to register with the SEC. Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083 - [2732915-013](https://wulfkaal.github.io/claims/2732915-013) [empirical/evidenced] -- The SEC estimates that 230 U.S. hedge fund advisers with at least $1.5 billion in RAUM attributable to hedge funds at the end of any month in the prior fiscal quarter will file Form PF. > The SEC estimates that 230 U.S. hedge fund advisers with at least $1.5 billion in RAUM attributable to hedge funds at the end of any month in the prior fiscal quarter will file Form PF. Wulf A. Kaal, The Private Fund Industry Five Years after the Dodd-Frank Act – A Survey Study (2016). SSRN: https://ssrn.com/abstract=2732915 - [2732915-015](https://wulfkaal.github.io/claims/2732915-015) [empirical/evidenced] -- Form PF data from the SEC Risk and Examinations Office for the fourth quarter of 2014 show net asset value of about $3,399 billion for hedge funds, $2,672 billion for Qualifying Hedge Funds, and $1,744 billion for private equity. > Form PF data provided by the SEC's Risk and Examinations Office for the fourth quarter of 2104 show that the net asset value is around $3,399 billion for hedge funds, $2,672 billion for Qualifying Hedge Funds and $1,744 billion for Private Equity. Wulf A. Kaal, The Private Fund Industry Five Years after the Dodd-Frank Act – A Survey Study (2016). SSRN: https://ssrn.com/abstract=2732915 - [2739479-001](https://wulfkaal.github.io/claims/2739479-001) [definitional/asserted] -- Title IV of the Dodd-Frank Act ended more than fifty years during which the hedge fund industry operated under low-level regulatory oversight, constituting a tectonic shift in the regulatory framework for private funds. > Over fifty years of low-level regulatory oversight for the hedge fund in- dustry ended with Title IV. Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479 - [2739479-007](https://wulfkaal.github.io/claims/2739479-007) [mechanism/evidenced] -- 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. > As the investor profile for private funds shifts toward institutional investors, fees fall. Institutional investors constituted 65% of hedge fund AUM in 2015, compared to just 20% a decade ago. Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479 - [2739479-016](https://wulfkaal.github.io/claims/2739479-016) [mechanism/argued] -- The traditional distinction between mutual funds and private funds is dissipating: mutual funds are becoming more like hedge funds in investment strategy, while hedge funds are becoming more like mutual funds in regulatory framework. > Several factors suggest that mutual funds are becoming more like hedge funds as a matter of investment strategy, while hedge funds are becoming more like mutual funds as a matter of regulatory framework. Wulf A. Kaal, The Post Dodd-Frank Act Evolution of the Private Fund Industry Comparative Evidence from 2012 and 2 (2016). SSRN: https://ssrn.com/abstract=2739479 - [2748096-001](https://wulfkaal.github.io/claims/2748096-001) [empirical/evidenced] -- Government assessments of hedge fund systemic risk conflict directly: the OFR, FSB, and IOSCO treat private fund activities as important threats to the financial system, while the UK Financial Services Authority concluded from its first comprehensive survey of London's private fund industry that hedge funds pose no systemic risk. > By contrast, the Financial Services Authority (FSA) (2010) in the United Kingdom concluded in its first comprehensive survey of London's private fund industry that the hedge fund industry poses no systemic risk to the financial system. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-002](https://wulfkaal.github.io/claims/2748096-002) [empirical/argued] -- 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. > Despite the mixed evidence produced by government reports on hedge funds' systemic risk, the majority of post-crisis evidence provided by leading financial economists suggests that hedge funds may play a role in introducing at least some systemic risk into the financial system. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-003](https://wulfkaal.github.io/claims/2748096-003) [mechanism/asserted] -- Public perception, rather than measured risk, is the principal driver of the hedge fund systemic risk debate and of the policy responses to it, and that perception is shaped chiefly by industry growth and by the collapse of prominent funds. > largely drives the debate on hedge funds' systemic risk and policy responses. Several core factors drive this perception, including, most prominently, the growth of the hedge fund industry and the collapse of prominent hedge funds. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-004](https://wulfkaal.github.io/claims/2748096-004) [empirical/evidenced] -- Hedge fund assets under management grew from $118 billion at the end of 1997 to more than $2.7 trillion by the end of 2014, a compound annual growth rate of 19 percent. > assets under management (AUM) at hedge funds grew from $118 billion at the end of 1997 to more than $2.7 trillion by the end of 2014 (BarclayHedge 2016). This change represents a compound annual growth of 19 percent. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-006](https://wulfkaal.github.io/claims/2748096-006) [mechanism/evidenced] -- 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. > But some research suggests that private fund advisers are unlikely to trigger a systemic event because losses in hedge funds are directly absorbed by the multitude of investors and their equity capital and may actually reduce market volatility Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-013](https://wulfkaal.github.io/claims/2748096-013) [mechanism/asserted] -- Hedge funds' risk management practices are typically evolved enough to constitute a major barrier to systemic shocks, and their trading counterparties and lenders further help prevent losses large enough to disrupt the financial system. > Hedge funds' risk management practices are typically so evolved that they constitute a major barrier to systemic shocks. Hedge funds' counterparties in trades and lenders to hedge funds can also help prevent large losses that could disrupt the financial system. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-014](https://wulfkaal.github.io/claims/2748096-014) [empirical/evidenced] -- 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. > evidence also exists that hedge fund losses that could have affected the overall economy did not occur until the financial crisis and the recession had been triggered by the mortgage market collapse and sustained stock market losses Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-017](https://wulfkaal.github.io/claims/2748096-017) [mechanism/argued] -- The performance pressure on hedge fund managers incentivizes them to take disproportionately high risks in order to deliver sufficient client returns, and those disproportionate risks translate into proportional systemic risks. > Arguably, in order to obtain sufficient returns for their clients, hedge fund managers are incentivized to take disproportionately high risks in their management strategies, which can translate into proportional systemic risks. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-022](https://wulfkaal.github.io/claims/2748096-022) [empirical/evidenced] -- Concern about hedge fund leverage is empirically overstated: since the collapse of LTCM in 1998 the industry's exposure to leverage has been relatively modest, especially compared with the mean leverage of investment banks and broker/dealers. > evidence exists that the hedge fund industry's exposure to leverage has been relatively modest since the collapse of LTCM in 1998, especially compared with the mean leverage of investment banks and broker/dealers (Ang, Gorovyy, and Van Inwegen 2011). Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-032](https://wulfkaal.github.io/claims/2748096-032) [empirical/evidenced] -- Although hedge fund return volatility is less sensitive to financial system risks than that of brokers, banks, and insurance companies, nonlinear Granger causality tests show that between 2001 and 2008 volatility was transmitted across all parts of the system, including from hedge funds to brokers and banks. > they find that volatility between 2001 and 2008 is transmitted across all parts of the system, including from hedge funds to brokers and banks. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-039](https://wulfkaal.github.io/claims/2748096-039) [condition/argued] -- Hedge funds have the potential both to amplify and to mitigate systemic risk, and which effect dominates turns on their particular risk management incentives, leverage, and investment strategies, which is why the academic evidence remains mixed. > Hedge funds may have the potential to amplify and/or mitigate systemic risks due to their particular risk management incentives, leverage, and investment strategies. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2811729-002](https://wulfkaal.github.io/claims/2811729-002) [empirical/evidenced] -- Unconstrained mutual funds share multiple investment strategy and risk attributes with fixed income hedge funds, a finding the authors ground in trading data and prospectuses of all such funds launched from 2010 through 2015. > article demonstrates that unconstrained mutual funds share multiple investment strategy and risk attributes with fixed income hedge funds. Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729 **2017** - [2959730-011](https://wulfkaal.github.io/claims/2959730-011) [empirical/evidenced] *(failure mode)* -- In the Buffett and Seides wager on net of fee returns, the passive S&P 500 index position produced a 7.1% compounded annual return after nine years against 2.2% for the five hedge funds of funds, evidence that industry performance does not justify the 2/20 fee structure. > A year before the end of the wager, Buffet's nine-year result is a 7.1 % compounded annual return compared to Seides's 2.2%. Wulf A. Kaal, Blockchain Applications and Fee Structure Developments in Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2959730 - [2959730-026](https://wulfkaal.github.io/claims/2959730-026) [design/evidenced] -- Blockchain based fund reporting substitutes verifiable transparency for hedge fund secrecy: the LendingRobot ledger shows detailed holdings and supplies a hash code signature as evidence that the data is tamper proof. > Unlike traditional hedge funds that are rather secretive, the LendingRobot ledger shows detailed holdings and provides a "hash code" signature as evidence that the data is tamper-proof in the blockchain. Wulf A. Kaal, Blockchain Applications and Fee Structure Developments in Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2959730 - [2998097-027](https://wulfkaal.github.io/claims/2998097-027) [failure/argued] *(failure mode)* -- The threat of public disclosure of systemic risk filings through the bankruptcy process only marginally affected hedge funds' tactics and their role in distressed investing, because disclosure obligations under the Dodd-Frank Act remained generic and unstandardized. > The paper highlighted that the threat of public disclosure of systemic risk filings by hedge funds via the bankruptcy process only marginally affected hedge funds' tactics and their role in distressed investing.154 Hedge funds' disclosure obligations under Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097 - [2998097-033](https://wulfkaal.github.io/claims/2998097-033) [mechanism/argued] -- Confluence runs in both directions: mutual funds are becoming more like hedge funds as a matter of investment strategy, while hedge funds are becoming more like mutual funds as a matter of regulatory framework. > Several factors suggest that mutual funds are becoming more like hedge funds as a matter of investment strategy, while hedge funds are becoming more like mutual funds as a matter of the regulatory framework.169 The factors that perhaps best illustrate the Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097 - [3002908-035](https://wulfkaal.github.io/claims/3002908-035) [empirical/evidenced] -- Fund type composition diverges across regions: in the United States hedge funds dominate the blockchain using sample, while in Europe venture capital funds clearly predominate. > the majority of private funds are hedge funds (10), tech funds (7), private equity (5), venture capitals (4) and others (2). In Europe, the distribution among the types of investors is different: the majority of the private funds identified are venture capitals (22) Wulf A. Kaal, Marco Dell'Erba, Blockchain Innovation in Private Investment Funds - A Comparative Analysis of the United States and (2017). SSRN: https://ssrn.com/abstract=3002908 **2019** - [3409548-001](https://wulfkaal.github.io/claims/3409548-001) [mechanism/argued] -- Hedge fund managers adopt emerging technology because it converts into a fee premium: technology driven outperformance makes them more competitive than other funds and financial institutions, which in turn lets them charge higher fees. > Being more competitive through technology and creating higher returns for their clients, in turn, allows them to charge higher fees than traditional financial institutions. Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548 - [3409548-002](https://wulfkaal.github.io/claims/3409548-002) [condition/argued] -- The traditional 2 and 20 fee model has become increasingly difficult to justify, and embracing modern financial products is what allows managers to produce returns that still support that model. > In recent years, it became increasingly more difficult to justify the 2 and 20 fee model.4 Embracing modern financial products allows them to produce returns that can still justify that fee model. Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548 - [3409548-005](https://wulfkaal.github.io/claims/3409548-005) [failure/evidenced] *(failure mode)* -- Systematic, computer model driven funds do not reliably outperform human managed funds: research finds the typical systematic fund does not always perform as well as funds run by human managers. > However, according to research done by Preqin, the typical systematic fund doesn't always perform as well as funds operated by human managers. Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548 - [3409548-006](https://wulfkaal.github.io/claims/3409548-006) [empirical/evidenced] -- Hedge funds that base their strategies on artificial intelligence have delivered better results than the industry average over the preceding five years. > Hedge funds that base their strategies on AI have provided better results over the last five years than the average. Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548 - [3409548-020](https://wulfkaal.github.io/claims/3409548-020) [design/evidenced] -- Blockchain-based funds can invert the traditional secrecy of hedge funds: the LendingRobot ledger discloses detailed holdings and supplies a hash code signature evidencing that the data is tamper proof. > Unlike traditional hedge funds that are rather secretive, the LendingRobot ledger shows detailed holdings and provides a "hash code" signature as evidence that the data is tamper- proof in the blockchain. Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548 ## Verify Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. 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