For investment institutions that fully exploit their private status, hedge funds command a surprisingly large public profile. For example, the media gave significant coverage to SAC, the hedge fund started by Steven A. Cohen, with eight employees convicted of insider trading (Stevenson & Goldstein, 2014). Recent cases of successful hedge fund activism include Daniel Loeb’s Third Point Fund pressuring of auction house Sotheby’s—the oldest company traded on the NYSE—to separate its businesses, engage in stock buybacks, and increase its dividend (Stevenson & de la Merced, 2014). A case of activism that has met with opposition from other investors concerns leveraged-buyout-turned-hedge-fund-activist Carl C. Icahn pressing Apple for a stock buyback (de la Merced, 2014). Another visible case is the battle between William A. Ackman of Pershing Square Capital Management and Herbalife, in which he has “pulled the levers of power” in pressing regulators and politicians against the company (Schmidt, Lipton, & Stevenson, 2014). Rooted in collective memory is Long-Term Capital Management, which in 1998 created turmoil in currency markets, causing 14 central banks to facilitate efforts to avoid global contagion of the downturn (Dungey, Frey, Gonzalez-Hermosillo, & Martin, 2007; Furfine, 2006; Halstead, Hedge, & Klein, 2005) and leading to popular use of the phrases “too big to fail” and “moral hazard.” Yet, despite the publicity surrounding them and despite their global importance, information about hedge funds remains incomplete and insufficient (McCahery & Vermeulen, 2008).
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