Legal Risk refers to the risk of loss from a contract that cannot be legally enforced. It arises through uncertainty in laws, regulations, and legal actions. From the legal’s perspective, alternative investments diversify enormously across various jurisdictions and forms of incorporation. Next, hedge funds, by their nature, are private investment vehicles, which are not fully transparent or non-transparent at all. Therefore, a proper investigation of legal risks for hedge funds is more important than for any other investments. The sources of legal risk include capacity and enforceability issues, as well as the legality of financial instruments and exposure to unexpected changes in laws and regulations.
