On The Supervision Of Hedge Funds

Though hedge fund is not considered as the chief cause of financial crisis,it is the prime culprit that exacerbates the systematic risk.After the"incident of long term capital management company,much attention has been paid to the topic of supervising hedge fund.Since hedge fund market in China has a relatively late startup,it is now in an upward trend of development with no signs of slowing down.However,it also encounters many problems which are not satisfactorily responded because of less refined and defective supervision modes and supervision systems for it.For this reason,it is a top priority as for us to speed up our improvement of the supervision system for hedge fund.Apart from the introduction and conclusion parts,this paper can be divided into 4 parts.Part 1 has analyzed basic problems of hedge fund.Hedge fund is a special collective investment tool,which has a specific commission structure and whose target is to use the positive trading strategy to ensure absolute returns,irrespective of the market trend.While the positive significance it has on the market includes the improvement of efficiency and the provision of liquidity,it also has problems such as the conflict between risk and interests of counterparty.Aiming at the protection of investors and the control of systematic risks,it is necessary for us to pay due attention to the supervision of hedge fund and continuously improve its supervision system.Part 2 has analyzed and explained two supervision modes.Comparing with direct supervision,though indirect supervision is superior in aspects including the flexibility and cost of supervision and the reaction of investors,it has the fatal flaw of insufficient independence.Judging from the experiences of international community on the adjustment or change of supervision modes,it is very hard for a singlesupervision mode to realize the purpose of supervision.Effective supervision can onlybe realized by a complementary application of the two supervision modes.Part 3 has described and studied in greater detail the major supervision systems relating to hedge fund.For the administrator registration system,consideration should be given to those aspects,including the flexibility and cost of supervision and the reaction of investors.Also,its implementation should satisfy the needs for risk prevention and investor protection.The design of the information disclosure system not only needs to balance the interests of various parties involved in the supervision,but also has to closely combine the actual development of hedge fund so as to improve the effectiveness of such system.Part 4 returns to review our supervision system for hedge fund.On the basis of balancing two major purposes of the supervision,namely the investor protection and risk prevention,relation between different supervision modes has to be coordinated to ensure the certainty and predictability of direct supervision while providing legislative guarantee to the main broker and supervisor on behalf of the investors.When improving the major supervision systems,the case in which a registered administrator can be exempted should be included in order to minimize the obligation to provide information at the time of registration.In addition,standard of risk transparency for information disclosure should be expressly specified and the specific way for such disclosure should be established in order to promote the healthy and long term development of hedge fund market.