A Legal “Bubble”

Abstract

The authors cover some of the more and less obvious risks now confronting hedge fund and investor, and they highlight legal risks that have been largely ignored by the industry. The article begins by discussing the predilection of some styles of hedge funds to make more probable that statistically unlikely events will happen nonetheless. It reviews briefly some of the new risks that have been covered frequently by other authors and in the press. The increasingly investor unfriendly legal language showing up in LP documents is discussed, and the authors show how two unfriendly legal requirements could in certain cases hurt not only the LPs but effectively dissolve a fund no matter its performance. In conclusion, the authors propose certain remedies that both general and limited partners may take to alleviate some of the concerns addressed here.