Sean M. Donahue


Hedge funds are a viable investment alternative for financially sophisticated investors. However, because traditional hedge funds and funds of funds are unsuitable for average investors, these investors should be restricted from making such investments. Regardless of who invests in hedge funds, advisers of these entities must be regulated to assure that they do not commit fraud. In addition to monitoring advisers, the SEC must limit hedge funds' use of leverage to assure that market collapse does not occur. Part II of this Note describes the history and development of hedge funds. Part III illustrates the current problems facing the hedge fund industry. Part IV discusses hedge fund regulation prior to the Amended Investment Advisers Act of 1940. Part V analyzes the amendments to the Investment Advisers Act. Part VI discusses problems with the Amended Advisers Act. Part VII proposes solutions for more effective regulation of hedge funds. Part VIII summarizes the Note and advocates for the proposed solutions. Part IX briefly discusses the case Goldstein v. SEC which struck down the Amended Advisers Act.