Hedge Fund Advertising

 

Have you seen all those big full page ads for hedge funds in the Wall Street Journal, the Financial Times, Investors Business Daily? Youhaven't. Maybe they are being drowned out by the regular mutual funds who continually tell you how great they are.

Shucks! I forgot. Hedge funds are not allowed to advertise. I wonder why. Maybe they thinkthat their potential customers are too dumb toknow that hedge funds are a poor investment. Could be. The Securities and Exchange Commissionis trying to protect investors - I think?

To be able to buy into a hedge fund thesmallest investor must have a net worth of$1,000,000 and an income of more than $200,000per year. Maybe the SEC doesn't think thesefolks are bright enough to know a good thingwhen they see it.

The media is there to report the facts. It is hard to believe that just because a largeportion of their income is from advertisingrevenues of mutual funds that they would be laxabout this.

If you were a fund manager and your fund was under performing and it was reported in thelocal paper, TV, or radio would you pay them tocarry your advertising? You sure would not wantto be compared with performance of a hedge fund.

What is it that makes the difference of astandard mutual fund with a hedge fund? Why doesthe smart money gravitate to them? One word. Performance. A regular hedge fund manager ispaid on HOW MUCH money he has in his fund andnot on how much he makes for the investor. Thehedge fund manager is paid a percentage of thePROFITS he makes for the investors. No profitmeans no bonus so he better do the job or hewill be out of a job. Smart money moves. Itmoves to where the profit is being made.

The SEC will not allow standard mutual fundmanagers to be compensated in this manner. Theirclaim is that it will be too dangerous for thesmall investor. Hog wash! If a fund is losingmoney the little guy should be selling hiscurrent funds like the smart money and finding abetter performing fund. None of the mediarecommend this to the little guy.

My guess is there are enough intelligent fund managers who would like to be paid forperformance and would set up no-load funds toattract investors. The SEC seems to think moreof the funds than they do of the smallerinvestors.

It is a shame you can't check the advertisingclaims of standard mutual funds against thereturns of hedge funds.

Copyright 2005

Copyright 2005

 



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