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 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!