European institutional investors have begun to focus on
improving the governance of the hedge funds in which they invest.
In Europe, institutional investors typically access hedge funds
through the purchase of shares in the fund company, much like U.S.
investors buy shares in mutual funds. Conversely, U.S.
institutional investors generally invest in hedge funds by
contributing capital as limited partners of a partnership
vehicle.
The difference in hedge fund investment approaches used by
European and U.S. institutional investors has raised questions as
to whether U.S. institutional investors could acquire hedge fund
shares, rather than limited partnership interests, and obtain
enhanced rights as to the governance of the fund. This e-alert
discusses some of the factors behind the different structures used
for hedge fund investments and identifies potential reforms in the
hedge fund investment process that could be explored by U.S.
institutional investors.
