Hedge funds have been enjoying something of a heyday, growing to an unprecedented $2.82 trillion in assets under management (AUM), since the dark days of the financial crisis. However, these lofty sums pale in comparison to the potential 11 trillion investment dollars controlled by an estimated 3.35 million high net worth individuals (HNWI) in the United States.
Brave New World or More of the Same
After more than 8 decades, the stranglehold of regulation has been loosened … or has it? Unquestionably, lifting the ban on general solicitation has opened new avenues for hedge funds to explore in terms of marketing investment opportunities to qualified candidates but, here is the rub: the pool of potential investors has not been altered by lifting the ban. Worse yet, the trade-offs hedge and other private funds must make to effectively market investment opportunities to HNWI may prove to be more onerous than first thought.
The Securities and Exchange Commission (SEC) has been painfully slow to establish hard and fast guidelines for the industry, and seems bent on making this already troubling situation worse as new definitions for “accredited investor” are mulled over by committee.
Then individual state laws governing securities will necessarily undergo changes. Although it is true that federal law will trump any state imposed anti-solicitation laws, states still retain their prerogative to regulate securities offerings.
Is There an Upside?
The short answer is—yes! Institutional investors frequently complain of the difficulties encountered in distinguishing one hedge fund from another and HNWI are primarily concerned with:
- The firm’s reputation
- Fund performance
- Investment strategy
In the absence of the ban, hedge funds are uniquely positioned to substantially address all of these issues, while avoiding the dangers represented by a sizable segment of the regulations being sown by the SEC like so many landmines.
Hedge fund managers should view this new paradigm as a safety net, affording the hedge fund the opportunity to differentiate itself from competing funds, tout its reputation, speak to its track record, expand on its strategy and demonstrate its transparency.
Incredibly, in a survey of 3,100 hedge funds domiciled in the United States, fewer than five percent had developed a website. Can you imagine any other financial services sector business in this predicament?
Job one for any hedge fund interested in defining its identity should be the development of a website. If a hedge fund fails to establish its identity or brand, it risks allowing its competitor to define it to its detriment.
On the Employment Front
Those seeking a portal into the hedge fund industry by virtue of their skills in website development, copywriting or content writing, can see that opportunities are almost certain to arise among forward thinking hedge fund firms.
In conclusion, it is fair to suggest that in the post ban world of hedge and private funds, there is “much ado about something” but the players continue to wrestle with the vision of what that “something” is.