Accessing the Inaccessible
From the Elite to Main Street
Hedge fund investors are no longer an elite core of the world’s wealthiest investors. Publicity about sustained superior returns attracted hoards of money into funds.
—Michael H. Steinhardt, legendary hedge fund manager
Pop quiz: HOW ARE human beings attracted to something?
Answer: Tell them they can’t have it.
As Groucho Marx once said, “I don’t want to belong to any club that will accept me as a member.” After all, the word exclusive comes from the word exclude. Imagine that—you’re told you can’t have something and then what? You immediately think to yourself, “I gotta have it.”
Think about it—when the government banned liquor in the age of Prohibition, speakeasies popped up serving rogue alcohol. The result: people flooded in the doors. The same happened in the world of finance. When the government said only “sophisticated investors”—a code phrase for rich enough to burn money—can invest in hedge funds, access points popped up.
Historically, hedge funds were only accessible to the very wealthy and superelite. As private funds they were able to avoid most of the disclosure requirements of U.S. securities laws. In exchange for this lack of regulatory oversight, money managers could not solicit the general public through any form of “communication published in any newspaper, magazine or similar media.” Historically, they had to rely on word-of-mouth, dinner-party-marketing to score wealthy clients who were ...