Yes, hedge funds are extremely flexible vehicles and are used by investment managers to pursue strategies across many different asset classes, from the highly liquid to the highly illiquid. Hedge funds that trade illiquid assets often utilize “side pockets,” an accounting mechanism that segregates illiquid investments from each other and from the fund’s liquid securities. Side pockets are designed to treat investors equitably, by allocating the side-pocketed investment to investors on a pro rata basis on the day the investment is made. This mechanism prevents later investors from receiving a stake in illiquid investments that are difficult to value. Likewise, because withdrawals from side pockets are restricted, side pockets prevent withdrawing investors from depleting a fund’s liquid assets to the detriment of the remaining investors. It should be noted that although side pockets serve a constructive purpose, side pockets create opportunities for improper use and have received some negative attention for this reason.
Can a hedge fund advertise on the Internet?
Historically, hedge funds have been prohibited from conducting any public offering by Rule 502(c) of Regulation D, which prohibited all forms of general solicitation and advertising. However, the JOBS Act…
Does a hedge fund need to register with any regulator?
Hedge fund managers are often regulated by the state in which the hedge fund manager conducts business or by the SEC, depending on the manager’s assets under management (known as…
What documents do I need to start a hedge fund?
Most hedge funds raise money through a private offering exemption under Regulation D of the Securities Act of 1933. Although Reg. D prohibits general advertising, fund managers do distribute certain…