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What kind of restrictions are there when it comes to marketing your fund? I've heard you can't advertise
Asked by HedgeCo Developer (Investor)
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Answer By Dan Constantine
The SEC puts forth strict guidelines when it comes to advertising a hedge fund. Not only do you have to meet certain requirements to invest in a hedge fund, you have to meet certain requirements to even BROWSE a hedge fund. Thats why, if you visit a hedge fund website, you won't even get past the homepage unless it is proven that you are a qualified investor. This is so "average" people won't be tempted to put their entire life savings into a hedge fund, since they are pretty risky for the most part. Due to those restrictions, managers have only a small outlet for getting their fund out there. Thats why, a lot of times, they rely on 3rd party marketers or prime brokers to introduce them to an investor database. Since you can't advertise in the "normal" sense...(radio, print ads, etc.)... they must rely on networking to promote their fund.
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Answer By John Schrier
The Securities Act of 1933 prohibits the public offering of securities, including the equity interest in a hedge fund, that aren't registered - an expensive proposition akin to a mutual fund. As a result hedge funds customarily are offered on a "private placement" basis, which qualifies for an exemption from registration. Private placement is the opposite of a public, advertised offering, and essentially restricts the fund manager to seeking investors from among contacts it already knows. Third party marketers can't advertise, either, but may have a longer list of contacts that you.
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