For the first time, hedge funds will be able to advertise to the public. That's because a new rule was adopted by federal regulators this week, lifting a decades-old ban. So… why exactly should the average investor care?
Put simply, because hedge funds aren’t alone. This new rule, mandated by the JOBS Act legislation enacted last year, applies to a broader array of investment firms, types, and managers.
And that may be an opportunity.
According to Bob Rice, managing director of New York-based Tangent Capital and author of the Wall Street Journal best-seller "The Alternative Answer," that opportunity to learn about the broader array of investments out there and possibly participate, is exactly why it’s good news for the average investor.
(Hedge funds are only allowed to sell securities to accredited investors, who have to have a net worth of at least $1 million excluding their primary residence. They are considered riskier and are less regulated than other investments.)
"People are going to become more familiar with the basic idea of investing in alternatives and why that is important - things that allow people to reduce their exposure to stock market volatility and really have been hidden behind a curtain," Rice tells The Daily Ticker. "So it's not just people haven't been able to invest in them, they haven't been able to understand what everyone else is doing to achieve the really exceptional returns that the larger investors have been making for a long time."
But with hedge funds and private equity firms now allowed to advertise to a wider audience, does that mean more firms like this will spring into being and more money will be flowing into them? And will that mean more volatility, because fingers often point to “fast money” when things go wrong on Wall Street?
Check out the video above to see Rice’s explanation of why he thinks the exact opposite will be the case.
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