The much maligned SEC, which last month was on the receiving end of two law suits from former Madoff investors, is said to be bracing itself for what may be the tip of a litigation iceberg. Disgruntled hedge fund investors are both angry and furious, demanding to know why the SEC, despite repeated warnings, failed to step in when it had the chance.

What many market analysts are now asking is what the ripple effect of this litigation will be, both for regulatory compliance and hedge fund managers alike. In a post Madoff world, what should hedge fund managers be looking to do in order to mitigate their own risks? What is the market landscape like for hedge fund managers in the US compared to the UK? Will this newly found zeal for regulatory and best market practice lead to a different kind of corporate culture within hedge funds?

Suddenly it seems everyone from tabloid editors to Senate committee leaders and government heads is looking to lay the blame on hedge funds for the world’s recent economic ills. Irrespective of the correctness of this, the perception is real, and so too are the ramifications for an increase in litigation against both hedge fund managers and those associated with the industry.

What is a relatively new development is the willingness and appetite of fund investors to file litigation directly against the hedge funds and those who manage them. Why is that happening now? One answer may be that the composition of individual fund investors has changed.

Hedge funds have historically been the preserve of institutional investors. As such they were in a different bargaining position to the more mainstream market investors, many of whom were themselves subject to the demands of performance returns from the funds and pension funders who had provided the admission fee to the party.