Hedge Fund Group Wants Right To Advertise

by Carla Johnson, Investors Offshore.com

24 July 2001

The Managed Funds Association (MFA) announced recently that it is planning to petition the US Securities and Exchange Commission this month for the right to place small, bare-bones advertisements known as 'tombstones' in newspapers and magazines.

Under rules which date from the 1940's, hedge funds are not allowed to advertise due to their risky nature, in order to protect less affluent and inexperienced investors from being drawn in by the promise of large returns without fully understanding the risks. However, the MFA insists that the intention is not to target retail investors. 'All we want to do is put name, rank, and serial number into the papers,' explained Patrick McCarty, the MFA's general counsel, and author of the letter which will be sent to the SEC. 'We are not doing anything illegal and no-one would be harmed with this.'

While hedge fund managers are hopeful that the SEC will approve this proposal, which will allow them to compete with some of the larger fund management companies, many experts are doubtful that the Commission will respond positively to the request, even given the fact that Bush favourite Harvey Pitt has just been appointed as the new SEC chairman.

They believe that the SEC might feel that acceding to the MFA's request could lead to a flood of similar enquiries which would bring this, and other risky investment strategies before an 'inappropriate' audience. 'It seems that anyone who is sophisticated enough to be in a hedge fund is already there or knows how to get them,' observed Ron Geffner, partner at Sadis and Goldberg, a law firm which deals with hedge funds. 'Presumably these wealthy individuals are capably represented by lawyers and brokers and so I'm assuming they [the MFA] are targeting individuals who are not 'sophisticated'.'

However, no-one expects a quick decision from the Securities and Exchange Commission, so hedge fund managers and potential investors would be advised not to hold their collective breath. 'The SEC is a bureaucracy and we will probably have some informal reaction by Christmas,' McCarty (semi) quipped. 'But you have to start somewhere.'

Recommended