Could the Hedge Fund Marketing Ban Come to An End?

Hedge funds are a unique investment vehicle. They have unique characteristics that allow them to avoid regulation – specifically, many hedge funds avoid registration and regulation as investment companies by relying on sections 3 (c) (1) or 3 (c) (7) of the Investment Company Act of 1940. However, with this advantage comes an important downside – hedge funds are prohibited from soliciting business or advertising its services in any way by both the Securities Act of 1933 and the Investment Advisers Act of 1940. ”A hedge fund typically begins its venture by offering securities to investors utilizing Section 4(2) of the ’33 Act and the safe harbor rules of Regulation D, particularly Rule 506. Under Rule 506, the offering of the fund does not have to be registered as a security with the Commission or any state, but instead employs a notice filing,” according to the SEC. ”A main premise of this rule is that there will be no general solicitation or advertising.”

According to FINAlternatives, the ban that prohibits hedge funds from advertising may be almost over. Barack Obama serious

“The JOBS Act, which President Barack Obama has suggested he would sign if it is passed, would eliminate the prohibition on the marketing of private placements, including hedge funds and private equity funds.” FINAlternatives writes, ”The JOBS—Jumpstart Our Business Startups—Act has already been passed by both houses of Congress; it awaits a second vote in the House of Representatives after the Senate amended the original measure passed by the House. Approval and the president’s signature are expected by next month.”

“The bipartisan bill, which President Obama is expected to sign next month, enables hedge funds and private equity firms to solicit investors directly, instead of through third parties that typically vet the firms before introducing them to clients,” reports the New York Times.

On the one hand, removing the ban will do much to improve the industry’s transparency. Because of the ban on advertising, hedge fund “managers generally take a cautious approach and strictly limit all types of communications about their business,” said Managed Funds Association President Richard Baker. “For example, private fund managers generally will not respond to press inquiries, even to correct inaccurate reports.” It also means that when a qualified investor wants information about a fund, he or she may find that the data actually available to him or her is very limited.

With the ban removed, hedge funds may not actually advertise – after all, investors have to meet certain qualifications, so you aren’t going to see many billboards talking about a hedge fund – but it will improve the information available about hedge funds, their investment strategies, top picks and performance. As such, it should become easier for investors to make an informed decision but it should also allow do-it-yourself investors to better “monkey” hedge funds.

But, on the other hand, there could be some caveats. As the New York Times writes, “While the bill could ease the path to fundraising, it could also introduce new risks to small investors unaccustomed to the complex and risky strategies the firms deploy.” It could also make it more difficult for investors to do due diligence. While hedge funds have always been a case of “Buyer Beware” – and that’s why those investing in hedge funds must be “qualified” –the relaxation of the hedge fund rules will likely open things up more for the smaller firms. Larger hedge funds, like John Paulson’s Paulson & Co, have more institutional clients and as such have no need for such marketing.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!