Reframing Complexity : Hedge Fund Policy Paradigm for the Way Forward

In the wake of the global financial crisis, the need for systemic risk mitigation in the shadow banking system is resoundingly evident. The task at hand is incomplete, leaving grey areas such as hedge funds obfuscated. I contend it is both timely and relevant to revisit hedge fund regulatory reform. The relationship between the banking and non-banking sectors requires continuous monitoring and further regulation, particularly in market conditions likely to shift banking functions outside the realms of prudential regulation. In addition, as complacency is a likely companion to normalcy, the window of opportunity for meaningful reforms is rapidly closing. This Article proposes an elucidating and flexible policy paradigm in support of an understandable stance on hedge fund regulation. Such approach is crucial to continue the discourse on post-crisis reforms. By conceptualizing degrees of regulatory intensity and prescriptiveness as points on a continuum, the proposed matrix of continuums provides contextual adaptability. It also reframes the complexities of hedge fund regulation using basic regulatory trade-offs. In doing so, this proposal supports ongoing evaluations and open dialogue of relevant issues. Accordingly, such policy paradigm for a targeted and balanced formula of hedge fund regulation reflects pivotal lessons from the recent crisis and offers a simplified perspective to facilitate analysis of reforms in the context of the international soft law system