Us Hedge Fund Oversight in the Aftermath of Madoff : Finding the Right Balance

The revelation en masse of fraudulent schemes among US asset managers has led many to question whether regulators could have exercised more effective oversight and, if so, what shape such oversight should have taken. US lawmakers have reintroduced legislation that would make a large number of hedge fund and other asset managers with links to US investors register as investment advisers under the US Investment Advisers Act of 1940, among other measures. Studied scrutiny of the Advisers Act suggests that, despite its virtues, it does not sufficiently segregate functions where investment advisers also act as broker-dealers and custodians nor does it cause the regulator to seek independent information on the adviser's activities. Comparative analysis with provisions of UK and Irish law-applicable to investment advisers leads to a tentative conclusion that applicable regulation can and should prohibit investment advisers from simultaneously fulfilling custodial functions. In addition, regulators can look to custodians and depositaries — parties with day-to-day contact with the investment adviser — as independent sources of information on an investment adviser's activities. Together, measures of this nature can act to strengthen oversight under the Advisers Act