HEDGE FUNDS:REGULATION ANDNONREGULATION -- CONTENTS -- PREFACE -- WHAT GAO FOUND* -- WHY GAO DID THIS STUDY -- ABBREVIATIONS -- RESULTS IN BRIEF -- BACKGROUND -- HEDGE FUNDS GENERALLY ARE SUBJECTTO LIMITED DIRECT OVERSIGHT, BUTREGULATORY FOCUS HAS INCREASEDSINCE LTCM -- WITH LIMITED AUTHORITY TO REGULATE HEDGEFUNDS, SEC LARGELY MONITORS HEDGE FUNDACTIVITIES AND RELATED RISKS THROUGHCONSOLIDATED SUPERVISION OFLARGE SECURITIES FIRMS -- SEC Examinations of Hedge FundAdvisers Identified Areas of Concern -- SEC Monitors Risk Management Practices at the LargestSecurities Firms with Significant Hedge Fund Activities -- CFTC CAN MONITOR HEDGE FUND ACTIVITIESTHROUGH ITS MARKET SURVEILLANCE, REGULATORYCOMPLIANCE SURVEILLANCE, AND DELEGATEDEXAMINATION PROGRAMS -- Bank Regulators Have Conducted Some ExaminationsRelating to Hedge Fund Business at Banks -- INVESTORS, CREDITORS, ANDCOUNTERPARTIES HAVE INCREASED EFFORTSTO IMPOSE DISCIPLINE ON HEDGE FUNDADVISERS, BUT SOME LIMITATIONS REMAIN -- BETTER DUE DILIGENCE AND GREATER DEMANDFOR TRANSPARENCY FROM INVESTORS HAVE RESULTEDIN INCREASED HEDGE FUND DISCLOSURE,BUT SOME INVESTORS MAY LACK THE CAPACITYTO ASSESS RISK EXPOSURES -- CREDITORS AND COUNTERPARTIES CAN IMPOSE SOMEMARKET DISCIPLINE ON HEDGE FUND ADVISERS AS PARTOF CREDIT EXTENSION, BUT THE COMPLEXITY OFCOUNTERPARTY CREDIT RISK MANAGEMENT POSESONGOING CHALLENGES FOR FINANCIAL INSTITUTIONS -- REGULATORS VIEW HEDGE FUND ACTIVITIESAS POTENTIAL SOURCES OF SYSTEMIC RISKAND ARE TAKING MEASURES TO ENHANCEMARKET DISCIPLINE AND PREPARE FORFINANCIAL DISRUPTIONS -- DESPITE INTENSIFIED MARKET DISCIPLINE, CONCERNSABOUT HEDGE FUNDS CREATING SYSTEMIC RISK REMAIN -- REGULATORS ARE TAKING STEPS TO STRENGTHENMARKET DISCIPLINE TO ADDRESS SYSTEMIC RISKCONCERNS STEMMING FROM HEDGE FUND ACTIVITIES -- AGENCY COMMENTS -- APPENDIX I: SCOPE AND METHODOLOGY.

APPENDIX II: PENSION PLAN INVESTMENTSIN HEDGE FUNDS HAVE INCREASED BUTARE STILL A SMALL PERCENTAGEOF PLANS'TOTAL ASSETS -- APPENDIX III: VARIOUS HEDGE FUNDINVESTMENT STRATEGIES DEFINED -- REFERENCES -- INDEX.