Economics Makes Strange Bedfellows : Pensions, Trusts, and Hedge Funds in an Era of Financial Re-Intermediation

In Strong Managers, Weak Owners, Professor Mark J. Roe articulates an expansive theory to explain the evolution of the fragmented market structure in the United States. He posits that political choices led to fragmentation in the American financial markets, thus guiding the evolution of the Berle-Means Corporation. His view is sometimes supplemental to, but often in contradiction with, conventional economic efficiency or functionalism arguments that are used to explain that evolution. This Article examines Professor Roe's theory. It will use the political influences that Roe credits with fragmentation to understand current changes in market structure, including the growth of hedge funds, in general, as well as the advent of activist hedge funds that are re-shaping corporate governance. It will end by exploring some unique problems facing pensions and trusts that invest in hedge funds. The result will be a deeper understanding of the Disintermediation Thesis within the model of recent market evolution. This Article will also offer a policy prescription for government regulators that oversee the fiduciary intermediaries who invest in these new vehicles