Hedge funds – coming to a billboard near you!

May 7, 2008 by Felix

The A word. A word that hedge funds are always quick to disassociate themselves with, for fear of a regulatory backlash. While many argue that hedge funds are no different from a regular business considering the presence of risks and rewards, regulators seem to think otherwise. The SEC thinks that hedge funds should not market themselves to potential investors, unless those potential investors agree to a declaration form that is too long. Many hedge funds have hence moved to password-protect their websites so that only pre-screened visitors can access performance details. The rationale? Showing performance numbers are seen as solicitation of investors, regardless of whether they are positive or negative numbers. Interesting.

News reports have recently been publishing articles on the chronicles of Phillip Goldstein, who two years ago successfully sued the SEC and overturned a rule requiring hedge fund managers to register as investment advisers. Goldstein is now reportedly planning to sue the regulator to lift its ban on hedge fund marketing and advertising. While it does seems like a long shot to victory, at least someone’s trying to faciliate the evolution of the alternatives industry. One point I made on the NYTimes blog that carried this article, was the fear that even if Goldstein wins the suit, he will only have won the battle, not the war. The internet is a global space, think about that. What difference does one regulator make, when the internet is so loosely governed, if at all.

“The only websites required to pre-qualify people are hedge funds and pornography“

- Philip Goldstein

In my opinion, hedge funds have been advertising to the general public for decades. As a guest anchor on Bloomberg and CNBC, as a panelist in a conference, as a speaker in a university endowment fund function, and now even on your iPod! (link) Hedge fund databases have also arbitraged on the legal restrictions to slap fees on hedge fund managers, their investors and practically any other individual who is willing and able to pay the price, for access to these (marketing) data.

No amount of regulation will restrict our ability to innovate and evolve.