TITLE

Registered Hedge Funds: Retail Investors Enter the Marketplace

AUTHOR(S)
Anson, Mark
PUB. DATE
August 2003
SOURCE
Journal of Financial Planning;Aug2003, Vol. 16 Issue 8, p62
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article presents an overview of where hedge funds fall within the U.S. securities laws, including a discussion of the safe harbors employed by most hedge funds. Hedge fund managers tend to seek out arbitrage or mispricing opportunities in the financial markets using a variety of cash and derivative instruments. Their investment styles are alpha-driven rather than beta-driven. Hedge funds are generally treated as investment companies under the U.S. Investment Company Act of 1940. A Section 3(c)(1) fund may sell its securities or partnerships interests to no more than 100 investors. A qualified purchaser is any institutional investor with $25 million in discretionary capital or any individual with at least $5 million in total assets--essentially a high net worth investor. In contrast, a registered hedge fund can offer its securities to as many investors as it wants. This means that the registered hedge fund is subject to regulatory audits by the Securities and Exchange Commission (SEC). All mutual funds that sell their securities to retail investors must file a prospectus with the SEC before they offer their securities for sale. Incentive fees are mainstay of the alternative asset investment universe. The typical fee structure for most hedge funds is one and 20--that is, a one percent management fee and a 20 percent incentive fee. One potential disadvantage of a registered hedge fund is the lack of liquidity associated with an investment in a closed-end mutual fund because, by definition, it does not issue redeemable shares.
ACCESSION #
10539429

 

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