If hedge funds have increased systemic risk, we need to find out by how much and whether the benefits outweigh the risks, says Andrew Lo and Amir Khandani’s paper on quants (see story on page 42). But registration is not the way forward. The authors back up proposals made by other academics that instead a monitoring board would make a good starting point. "By establishing a dedicated and experienced team of forensic accountants, lawyers, and financial engineers to monitor various aspects of systemic risk in the financial system, and by studying every financial blow-up and developing guidelines for improving our methods and models a capital markets safety board may be a more direct way to deal with the systemic risks of the hedge fund industry," concludes the paper. "A great idea," comments one manager, "but the banks will never allow it."
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