Hedge Funds and Conflict Of Interest
Hedge funds are often looked upon as being unethical in their practices. This is partly because there is public outrage about the amount of money that some of the fund managers are able to earn as income even though they are supposedly causing systemic crisis. The fact that the names of hedge fund managers have come up in several scandals further accentuates this negative perception. In this article we will have a look at how hedge funds take care of their fiduciary duties. We will also look at some examples of possible conflicts of interest for the hedge funds.
Each and every hedge fund has a fiduciary duty towards its investors. This means that it is supposed to disclose all material and relevant information which may harm the interests of the investors putting their money in these funds. Therefore, even though hedge funds do not fall under the purview of most laws pertaining to investment securities, they can still be prosecuted for hiding information. Such hiding of information amounts to misrepresentation in a contract.
Cases wherein investors have been cheated by the hedge fund management have been reportedly presented for trial in the American judiciary system. Some of the common conflicts of interest are as follows:
It would be fair to say that hedge funds as an industry are victims to the perception that has been created by some unethical managers. More often than not, hedge funds are run in a perfectly legal and ethical way. However, the occasional news article creates a bigger impression on the minds of the general population and the entire industry gets a bad name.
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