Identifying hedge fund elements susceptible to economic crime

Abstract

Hedge funds have provided an alternative approach to investing and is said to have revolutionised the way people invest and manage their wealth (Frush, 2007:7). Yet, despite all its popularity and notoriety, few people understand what hedge funds are, how they work and how they are regulated, and this leaves many people with feelings of admiration and fascination, but also envy and fear (Desmet, 2008:1). The global hedge fund industry has historically been known for its lack of transparency and Pierre-Louis (2009:23) emphasises that the elusiveness of hedge funds and their investment strategies is a cause of concern for the investing public, as well as the financial securities market. After the Global Financial Crisis of 2008, the financial services market came under scrutiny and the global hedge fund industry began to reconsider its regulatory environment. Various countries have since implemented more rigorous regulations on hedge funds which indicates that more oversight was needed in the industry. The objective of this study is to determine what elements of hedge funds are susceptible to economic crime through the conceptualisation and clarification of: i. The term "hedge fund fraud"; ii. The unique elements of hedge funds; iii. The analysis of identified case studies of hedge fund fraud in the United Kingdom (UK) and South Africa; and iv. The identified elements of hedge funds susceptible to economic crime through the analysis of the identified case studies.