Virtuous vultures: hedge funds as private regulators

This chapter is concerned with the relations between public and private regulation in respect of hedge funds, which in their own ways govern and re-shape markets, making moral, fairness and efficiency claims and drawing in regulatory resources where they can. Three hedge fund strategies are examined: the ‘activist’ strategy of intervening in target companies in order to push up the share price; ‘short and shout’, seeking to drive down the share price; and legal and political strategies vis-à-vis distressed debt, notably that of sovereigns, where cases in US courts concerning Argentinean debt and investor ‘holdouts’ have upturned previous understandings of debt restructuring. All three strategies involve noisy claims-making, which in activist strategies is economic in tone and focuses on return on investment; in shorting strategies it is moral in tone, focusing on alleged misrepresentation and misconduct; and in distressed debt strategists it is legal, constructing a right not to be bound by a settlement arrived at by the majority of creditors. These three hedge fund strategies respectively mimic regulatory concerns with market efficiency (activists), conduct (shorts) and fairness (distressed debt). A concluding discussion raises some questions about mainstreaming of hedge fund strategies within financial markets; about the purposes of financial markets; and about what more needs to be known about this private mode of governance of public and private subjects.

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