Increasing Investor Protection Through Improving Hedge Fund Valuation

Authors

Deirdre Farrell

Document Type

Note

Abstract

(Excerpt)

This Note examines the current hedge fund regulations in the United States and in Europe, and proposes ways for regulators to improve hedge fund valuation in the United States to increase investor protection. Although valuation issues affect all pooled investment vehicles that invest in illiquid, difficult-to-value assets, this Note focuses only on the valuation systems of hedge funds.

Part I gives an overview of hedge funds in general—their structure and the major stakeholders involved. Part II summarizes the valuation process and its associated issues. Part III describes recent regulatory changes in the United States affecting hedge funds, including the Dodd-Frank Act of 2010 and the JOBS Act of 2012. Part III also discusses recent changes in European regulation of Hedge Funds. Finally, Part IV proposes changes to the existing framework in the United States to improve transparency and standardize the valuation process for hedge funds. Part IV also discusses cost concerns of these proposals.