This thesis will trace the evolution of hedge funds and analyze the role they have played in the Asian financial crisis, the LTCM demise and the current credit crunch. Moreover, we will look at the policy response of national and global regulators to the three crises. Two primary questions are of particular concern to us: (1) Are hedge funds a threat to global financial stability; (2) Why were the crises not prevented by regulatory agencies? We have found that whether hedge funds become a threat to instability is contingent on changes in external vulnerabilities. The findings suggest that regulators have not been able to prevent the upcoming of crises because policy responses were not taken on a global scale; secondly, they have lacked a complete, impartial understanding of financial threats. We conclude that a form of global governance based on the G20 would contribute to reducing financial instabilities.