HEDGE FUND ADVERTISING
Have you seen all those big full page ads
for hedge funds in the Wall Street Journal, the
Financial Times, Investors Business Daily? You
haven’t. Maybe they are being drowned out by the
regular mutual funds who continually tell you
how great they are.
Shucks! I forgot. Hedge funds are not
allowed to advertise. I wonder why. Maybe they think
that their potential customers are too dumb to
know that hedge funds are a poor investment.
Could be. The Securities and Exchange Commission
is trying to protect investors – I think?
To be able to buy into a hedge fund the
smallest investor must have a net worth of
$1,000,000 and an income of more than $200,000
per year. Maybe the SEC doesn’t think these
folks are bright enough to know a good thing
when they see it.
There are other groups that are major
investors with the hedge funds. Literally billions
of dollars are invested by university endowments,
charitable trusts, state and corporate pension
plans. Could it be that they have a better
return than regular mutual funds? Naw! The media
would tell you wouldn’t they?
The media is there to report the facts. It
is hard to believe that just because a large
portion of their income is from advertising
revenues of mutual funds that they would be lax
about this.
If you were a fund manager and your fund
was under performing and it was reported in the
local paper, TV, or radio would you pay them to
carry your advertising? You sure would not want
to be compared with performance of a hedge fund.
What is it that makes the difference of a
standard mutual fund with a hedge fund? Why does
the smart money gravitate to them? One word.
Performance. A regular hedge fund manager is
paid on HOW MUCH money he has in his fund and
not on how much he makes for the investor. The
hedge fund manager is paid a percentage of the
PROFITS he makes for the investors. No profit
means no bonus so he better do the job or he
will be out of a job. Smart money moves. It
moves to where the profit is being made.
The SEC will not allow standard mutual fund
managers to be compensated in this manner. Their
claim is that it will be too dangerous for the
small investor. Hog wash! If a fund is losing
money the little guy should be selling his
current funds like the smart money and finding a
better performing fund. None of the media
recommend this to the little guy.
My guess is there are enough intelligent
fund managers who would like to be paid for
performance and would set up no-load funds to
attract investors. The SEC seems to think more
of the funds than they do of the smaller
investors.
It is a shame you can’t check the advertising
claims of standard mutual funds against the returns of hedge funds.
About the Author
Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter
and receive his market letter for 3 months at www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2005
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