By Stephen Brown, Anthony Lynch, and Antti Petajisto
Now that the Dodd-Frank Act has been passed by both houses of Congress, we finally know its broad implications for hedge funds. As expected, it requires all large hedge fund advisers to register with the SEC. Also the new rules on derivatives trading have an additional impact on many hedge funds. However, since the Act leaves many specifics up to the regulators, considerable uncertainty remains about the exact form of the new rules. The main tradeoff is between the government's desire to learn more about hedge funds, both to assess systemic risk and to protect investors, and the compliance costs this imposes on funds and investors. Overall, how economically sensible is hedge fund regulation in the Act, and how well does the Act resolve this tradeoff?