SEC Mulls Lifting Ban On Hedge Fund Advertising

by Carla Johnson, Investors Offshore.com

13 November 2003

The US Securities and Exchange Commission is reported to be mulling the qualified removal of a ban on hedge funds advertising to prospective clients.

The proposal, contained within a report on the hedge fund industry released last month, has been overshadowed by the regulator's more controversial suggestion that the risky funds should be required to register as investment advisers.

In the report, SEC staff suggested that:

"There seems to be little compelling policy justification for prohibiting general solicitation or general advertising in private placement offerings of...funds that are sold only to qualified investors."

Lifting the ban on advertising would help to remove the veil of secrecy which surrounds the industry, observers have suggested. Whilst hedge funds are unlikely to seek permission to advertise to low-end retail investors, they may ask to be allowed to hand out brochures at investment conferences, to cold-call qualified investors, and to increase the amount of non-password protected information on their websites.

Speaking to Dow Jones Newswires this week, Jolyne Caruso, president of $7 billion hedge fund, Andor Capital announced that:

"While the lifting of the ban is likely to be qualified, we would welcome any easing of restrictions of the rules for the highest end of the market."

However, head of UK hedge fund firm, Man Group's US operation, John Kelly warned that if the ban on hedge fund advertising is lifted, hedge fund managers must maintain strict standards of their own:

"I'm all in favour of simplicity, so that people can focus on doing a good job by making sure that an investor is suitable, and not just passing a hurdle that a regulator has put down, which is a blunt instrument," he announced.

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