ABSTRACT
This chapter analyzes the implications of the rise of hedge funds for corporate governance and corporate control. It examines a variety of presumptively "happy stories"—that is, examples of different kinds of activism where hedge funds have no apparent conflict of interest. The chapter argues that this hedge fund activism differs, quantitatively and qualitatively, from the more moderate forms of activism that traditional institutional investors engage in. It discusses why hedge funds are so much more active than other institutional investors. The chapter shows that hedge funds have better incentives, are subject to fewer regulatory impediments, and face fewer conflicts of interest than traditional institutions, such as mutual funds and pension funds, which have never lived up to the hopes of their partisans. It turns to potential problems generated by hedge fund activism. The chapter also turns to the most severe attack leveled against hedge funds: that hedge fund activism increases the pressure for short-term results over more valuable long-term benefits.
