8 February 2010

Who stands behind failing Hedge Funds?

News that a number of - sometimes quite large - hedge funds are moving their operations to Switzerland or other locations (or are in the planning stage) in order to help their promoters or employees avoid taxes they deem to be excessive raises the question of the new host country's ability (or willingness) to stand behind the funds if they get into trouble. As the example of Iceland has shown, the size of the host country should stand in a reasonable relation to the size of the financial institutions that the regulators of the country have to supervise. In case of fraud or other malfeasance investors are well-advised to study the small print in the legislation regarding the regulatory structure of the host countries: Does regulation involve more than box-ticking and are investors able to claim compensation from a well-financed scheme in case of fraud or default?