MFA Pushes For End To Hedge Fund Marketing Ban

Jan 17 2012 | 12:05pm ET

The U.S. hedge fund industry has asked the Securities and Exchange Commission to junk a nearly 80-year-old rule that all-but prevents alternative investments firms from marketing or speaking to the press.

The Managed Funds Association, the industry's primary lobbying body in the U.S., complained that rule 502(c) of Regulation D now covers an industry that "would be unrecognizable to" its "original drafters" in 1933. What's more, the rule is unnecessary, as other rules restrict hedge fund investments to the wealthy, and actually harms the industry's transparency.

Due to the rule, "managers generally take a cautious approach and strictly limit all types of communications about their business," MFA President Richard Baker wrote. "For example, private fund managers generally will not respond to press inquiries, even to correct inaccurate reports."

Under the terms of rule 502(c), speaking to the press could constitute illegal marketing of an unregistered security.

The rule also could be read to prevent hedge funds from disseminating any information, even truthful, other than to qualified investors. Many hedge funds, even the largest, have perfunctory public Web sites so as not to run afoul of the rule.

"We hope this will take some of the mystery out of things and get rid of the legal complexity associated with marketing," MFA general counsel Stuart Kaswell said. "We believe it is the appropriate time for these rules to change and the industry wants to be more transparent."


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