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All About Hedge Funds, Fully Revised Second Edition, 2nd Edition by Ezra Zask

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CHAPTER 8Hedge Funds, Shadow Banking, and Systemic Risk

Hedge funds are often considered part of the “shadow banking” system—a group of firms that perform some of the same functions as banks, yet exist outside the regulated banking world. Examples include bank-sponsored intermediaries such as asset-backed commercial paper conduits, money market funds, collateralized loan obligations, finance companies, asset managers, private equity and venture capital funds, sovereign wealth funds, and hedge funds.

Entities in the shadow banking system perform some of the functions of a bank, particularly financing long-term loans with short-term borrowing. However, shadow banking players differ from traditional banks in a number important ways:

• They are highly ...

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