A Law and Finance Analysis of Hedge Funds

This paper empirically analyzes the impact of hedge fund regulation on fund structure and performance. The data indicate restrictions on the location of key service providers and permissible distributions via wrappers are associated with lower fund alphas, lower average monthly returns, and higher fixed fees. Furthermore, restrictions on the location of key service providers are associated with lower manipulation-proof performance measures, while wrapper distributions are associated with lower performance fees. As well, the data show standard deviations of monthly returns are lower among jurisdictions with restrictions on the location of key service providers and higher minimum capitalization requirements.