Hedge funds Mind the gap

Capital guarantee wrappers are a popular way of making institutional investors feel safe with hedge funds. But the investment banks that provide them risk potentially huge losses if the hedge funds they are guaranteeing go belly-up. That isn’t just a worry for investment banks. It’s also a headache for regulators, given their concern about the financial system’s ability to withstand catastrophes. The capital markets have brokered a solution to the problem. Banks can buy insurance from investors...