The hedge fund industry has a long history of avoiding tougher regulation. But as the Obama administration and Congress look for ways to avoid another financial meltdown, that history may soon come to an end. Although it is not clear that hedge funds actually played much of a role in the current crisis, the industry’s sagging performance, combined with investors’ and regulators’ heightened demand for transparency, will likely cause big changes in the way these secretive investment pools operate, suggest several Wharton faculty members. Worries about hedge funds are likely to escalate after The Wall Street Journal reported on March 18 that the now-notorious insurance giant AIG might use taxpayers’ money to make good on hedge funds’ bets that the housing market would fall. At the same time that the government is struggling to revive housing, it could spend billions rewarding hedge funds that profit from the housing decline, the paper said.…