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Tuesday, May 22, 2007

Fun with Funds.

Greetings, all! Dan Markel and his fellow prawfs have very kindly invited me to guest-blawg here for the coming fortnight or so, and I’m grateful for their hospitality. In the past few days, I have completed my first year as a novice professor at Chicago-Kent College of Law, where I first took the chalk in classes on business organizations and securities regulation. Recently, I have published a piece on soccer in the Green Bag, which was a light and (for me at least) highly enjoyable introduction to law review publishing as a member of the academy. But my primary area of scholarly interest relates more specifically to funds: hedge, private equity, venture capital, exchange traded, and especially mutual. While I’ll allow as how funds -- even with the fun put in -- may not immediately set everyone’s adrenaline flowing, political and financial events are conspiring to make the topic of increasing and broader relevance.

First, the political: the discussion of privatizing social security -- which has fallen into remission lately but, like talk of a flat tax, will probably flare up regularly in future -- turns a great deal on the use of funds and the investment industry. Investment advisers (such as Fidelity, Vanguard, et al.), who manage such funds stand to make as much as $100 billion annually, by some estimates, if social security assets are privatized. Whether one has great confidence or none in investment advisers, surely we should take a close look at their record and the structural integrity of the industry before transferring all that money into its care.

Second, the financial: private equity funds have been dominating recent business headlines with reports of increasingly massive takeovers of public companies. The amounts of equity and debt raised by these funds have reached historic proportions, and few if any targets seem beyond their reach now. Factors such as the increasing compliance burdens of public corporations combined with relatively cheap capital are conspiring to fuel the boom, and funds appear to be the most energetic participants. In the coming days, I look forward to exploring specific issues relating to the internal affairs of funds (such as how they are structured, relations between investors and the fund manager, &c.) as well as their foreign policy (what the funds do vis-à-vis their investments and the broader market).

Posted by William Birdthistle on May 22, 2007 at 10:32 AM in Corporate | Permalink

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