SEC lifts ban on hedge fund advertising

[deltasigma]

Hedge funds will now be able to advertise but only “accredited investors” will be able to invest in the funds.

The Securities and Exchange Commission adopted a measure on Wednesday that will allow hedge funds and other private firms to raise money by advertising to the public for the first time in decades. Since the 1930s, these types of firms could only solicit wealthy individuals, who can presumably withstand potential losses. But beginning in October, hedge funds and others will be able to advertise to the masses via e-mail, billboards or even Facebook.

However the definition of accredited investor has not changed since 1982

However, the net worth and income requirements have not been adjusted for inflation since they were set in 1982, and Congress has barred the SEC from making any immediate adjustments.
Investor advocates say the thresholds are far too low. Anyone with a net worth of more than $1 million (with or without a spouse) or an income exceeding $200,000 (or $300,000 with a spouse) would qualify as accredited. A person’s primary residence is not part of the net-worth calculation because of a recent change in law.

In the short run it may not matter though since most hedge funds use futures contracts and the CFTC prohibits advertising, so unless and until that changes, the vast majority of traditional hedge funds will probably not be able to avail themselves of the new rule.

[Count_Blucher]

Dinsdale?

[SpoilerVirgin]

Well I certainly look forward to the loud public outcry that will be raised when hedge funds that were allowed to advertise crash and burn either through bad luck, poor management or malfeasance. As an avid reader of books about financial messes and a fan of American Greed, I expect that this decision will provide me many more hours of entertainment.