Hedge fund regulation is a hot topic right now. But we've heard only a little about that perennial issue: whether retail investors should be allowed more--or less--access to funds. Current proposals, driven by the credit crunch, would make it harder to qualify as an accredited investor. AllAboutAlpha suggests that current proposals would result in a drop in the pool of retail assets by about 50 percent.  

Perhaps this is not a bad time to revisit the idea. The age-old thought has been that most retail investors generally lack the sophistication necessary to really invest safely in hedge funds. But AllAboutAlpha notes a recent article by Houman Shadab of George Mason University that argues retail investors are actually hurt by restrictions on investing in hedge funds. He makes a number of good points, one of which is the idea that most hedge funds are not as complex as publicly traded corporations. In some cases, understanding various financial and other companies requires a certain amount of knowledge.  

A lot of retail investors have chafed over the years about this regulatory attitude, arguing with reason that it is more than a little patronizing. Shadab notes that wealth and financial sophistication are not correlated. In the view of many, accreditation requirements are downright discriminatory against the less wealthy. For them, the many hedge fund-like retail investments and funds of funds out there are not good enough.  

Shadab's solution is to throw open the floodgates via three proposals: Allow funds of funds to trade on exchanges, encourage a secondary market, and allow hedge funds to market to the retail crowd. What do you think? - Jim