Magazine Issues » June 2012

ASSOCIATION COLUMN: Hedge fund evolution

WashingtonFor most of its existence, the Hedge Fund Association (HFA) has faced the unusual challenge of promoting an industry that has intentionally tried to fly under the radar.

The HFA was formed in 1994 to educate the public about hedge funds and has members around the world. But its role was limited. US hedge funds have been banned from advertising or marketing themselves to the general public during their 60-year existence. As a result, the HFA has focused most of its efforts within the industry, helping hedge funds and businesses that service them connect with each other by producing educational seminars and representing the industry’s interests in Washington, DC.

All of this is about to change. Liberalised regulations in the United States are going to remove a lot of the mystery surrounding hedge funds and, in the process, allow the HFA to take a much more active role in educating investors about hedge funds around the world, including Europe.

The most significant change results from the new Jobs Act, signed by president Barack Obama in April. This legislation, which is expected to take effect later this year, removes the ban on advertising and marketing.

Advertisements for hedge funds will soon appear in financial publications in Europe, Asia, Africa and the Middle East, as well as in the US. In other words, rather than going through a consultant or a third-party marketer, hedge funds will be able to “speak” directly to potential investors.

No one expects to see hedge fund luminaries such as John Paulson or George Soros sponsoring Arsenal football club or splashing their names across billboards. But it’s highly likely that hedge funds hat want to raise more assets will invite readers of the Financial Times, Handelsblatt or Funds Europe to contact them to learn more.

US hedge funds will still need to verify that new investors are “accredited” because investing in them will still be restricted to “sophisticated” investors. But the new legislation does bring hedge funds out of the shadows and our goal at the HFA is to help guide hedge funds through this transition. 

A second significant change that will help investors worldwide get information more easily about hedge funds is the so-called Form ADV Part 2A and 2B. Do not be put off by this alpha-numeric moniker.

What it really describes is a new “plain English” brochure that must be filed with the US Securities and Exchange Commission (SEC) by every hedge fund or any investment manager with $150 million (€119.7 million) or more in assets. Taking a page from European regulators, the SEC’s goal is to get investment managers to eliminate jargon and legalese so that average college-educated investor can understand the product.

These “brochures” must be filed electronically with the SEC so that they are available to the investing public.

Advertising and online access to investment brochures will help hedge funds emerge from the shadows and let the public seem them in a more realistic way. The HFA, meanwhile, will continue producing seminars and lobbying on behalf of hedge funds.

The difference is that the new regulations will allow the HFA to open its events to everyone, giving it more opportunities to shed light on an increasingly important corner of modern finance.

Mitch Ackles is global president of the Hedge Fund Association

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