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Hedge Funds Regulation in the US: From the Near-Collapse of Long-Term Capital Management to the Dodd-Frank Act 2010

Do hedge funds ("HFs") call for regulation? By having a look at the post-Global Financial Crisis regulatory framework, the answer seems to be quite obvious. Although sometimes branded as "vultures" and deemed to be "out of the schemes of good capitalism", HFs’ role in causing the recent financial turmoils has been (and, in fact, still is) subject to a fierce debate among academics, practitioners and policy-makers. Despite the fact that their regulatory merit is not unanimously recognized, a well-known precautionary approach dominated the regulatory agenda in the midst of the Global Financial Crisis, leading to HFs-targeted regulation in some major jurisdictions, such as the US and the EU. According to some prominent academics, this resulted in a "reactionary regulatory excess" that in fact accounts for most of the intense criticism under which the relevant measures came on both sides of the Atlantic Ocean. Our research aimed at critically analyzing the regulatory constraints imposed on HFs by the epocal regulatory overhaul brought in by the US Dodd-Frank Act of 2010. The paper proceeds as follows: §1 sketches the broader post-crisis context within which HFs regulation is to be put and understood; §2 outlines HFs’ main structural and financial characteristics; §§3-7.5 describe the evolution of the US hedgefund regulatory framework, assuming the systemic concerns caused by the near-collapse of Long-Term Capital Management in 1998 as the "triggering event" of the political debate as to the opportunity to introduce some relevant legislative reforms; §8 critically assesses the appropriateness and effectiveness of the regulatory measures shaped by the Dodd-Frank Act of 2010, whereas §9 outlines some proposals to improve the current regulatory regime and draws the path for some future further research on the topic. Finally, §10 concludes.