Last week the SEC lifted an 80 year-old ban forbidding hedge funds from advertising to the general public. Under the terms of the new rule, funds will still only be allowed to accept money from so-called qualified investors defined as families with greater than $1 million net worth or annual income greater than $200,000 per year for the last two years.
Jonathan Hoenig, founding member of the hedge fund Capitalist Pig, says Let Freedom Ring. "While the pornographer, the cigarette manufacturer, the firearms manufacturer have been able to exercise their free speech rights and run all the ads they want for 80 years, it's been illegal for hedge funds to run an ad."
Hoenig says the ban was illegal, immoral and horrifically misguided. As a fund manager he's obviously talking in his own self-interest, but Hoenig has also put some money where his mouth is by openly flouting the SEC restriction in various print publications. Now he'll be able to do so legally.
"I'm delighted the SEC, though it took 80 years, finally saw the light of day and realized hedge funds have first amendment rights as well."
Hedge funds are perhaps the most polarizing financial product extant. Largely because of marketing restrictions and accredited investor hurdles, funds have long been pegged as exclusive and secretive. Recently the industry's record of underperformance and the Bernie Madoff scandal have made hedge funds look like a sucker investment made by clueless rich people.
The reality is hedge funds are simply investment partnerships unique only in that the manager takes both management and performance fees. Beyond that definition there's a fund to fit almost any investor's strategy. Bearish, bullish, levered or a traditional mix of paired long and short positions, most hedge fund strategies have long ago been adopted by mutual funds or ETFs.
Daylight is the best disinfectant. When the advertising ban is officially lifted this Fall, the veil will come down for all hedge funds. For individual investors information is always the best defense against getting scammed.
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