Hedge funds have emerged as influential players within the financial system, simultaneously providing considerable public benefits and contributing to systemic risk. Any attempts at regulating HFs should preserve their contributions to the efficiency of the financial system, whilst directly targeting the systemic risk, recognizing that standard financial regulations do not lend themselves to the hedge fund sector. Supervisors should leave the ongoing activities of HFs unencumbered, and focus their attention on crisis events with potential systemic consequences, with prime brokers and client banks legally obliged to participate in resolving such crisis events.