Hedge fund marketing by broker‐dealers questions and comments in response to recent developments

Abstract

This article discusses the implications of heightened regulatory attention to hedge funds by focusing on the practical questions that are on the minds of many in the hedge fund industry and, possibly, even in the thoughts of the regulators themselves. The primary regulatory condition relevant to the offer and sale of interests in hedge funds is the prohibition on general solicitation or general advertising by the sponsor of the hedge fund. Under NASD rules, brokers must (1) provide balanced disclosures in their promotional efforts; (2) perform reasonable‐basis suitability determinations; (3) perform customer‐specific suitability determinations; (4) supervise associated persons selling hedge funds and funds of hedge funds; and (5) train associated persons regarding the features, risks, and suitability of hedge funds and funds of hedge funds. Internal controls, including supervision and compliance, must include written procedures to ensure that sales of hedge funds and funds of hedge funds comply with all relevant NASD and SEC rules. Promotion of hedge funds must be balanced by a fair presentation of the risks and potential disadvantages of hedge fund investing

Citation

Butowsky, M.R. and Gibbons, M.L. (2003), "Hedge fund marketing by broker‐dealers questions and comments in response to recent developments", Journal of Investment Compliance, Vol. 4 No. 3, pp. 7-12. https://doi.org/10.1108/15285810310813158