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Attracting Investors
Our Customers Hannah Terhune and her associates have provided legal advice and services to me for over a year. She provided initial guidance to help determine the kind of fund most suitable for my goals, created the legal documents that are the framework for my hedge-fund, and assisted with ADV submissions to register my company as an Investment Advisor. I continue to rely on her for ongoing compliance issues in this complex and dynamic industry. I found Ms Terhune and her associates to be extremely knowledgeable and helpful in a very responsive way, with friendly and professional manners. Overall a very good experience. Highly recommended. Marty Cawthon ChipChat Technology Group
The JOBS Act, signed on April 5, 2012, lifted the ban on hedge fund advertising for hedge fund's operated by fund managers registered with either the SEC or a state regulator. The decades-old restriction on how hedge funds can raise money is gone! Hedge fund managers were restricted to power point presentations and tear sheets. Now hedge fund managers can speak publicly about their hedge fund's strategies and performance. Hedge fund managers will be able to advertise, use media broadcasts, use public websites, offer interviews, use social media, use email campaigns, and any number of other marketing strategies to generate interest in their hedge fund.
The Securities & Exchange Commission (SEC) will issue hedge fund marketing rules in the next few months. Learn More About Investment Adviser Registration The new regulations will not be effective until the SEC completes the formal process of drafting and approving the new regulations. It is hoped that the new rules will give hedge funds the ability to compete directly with mutual funds.
The SEC has 90 days from the signing of the JOBS Act to finalize hedge fund marketing rules. Once these rules are finalize, there will be an explosion in hedge fund advertising. Hedge funds will be blazing new trails. Need assistance? With the new competitive landscape, getting noticed will require intense, powerful marketing materials and a web presence to distinguish your fund from the crowd. Let us help you! Among the professional services we provide are practical ideas on how to find hedge fund investors and clients. Click Here to Sign Up for a Hedge Fund Marketing Consultation We can also show you how to use due diligence procedures to police and polish your own operations. Incorporate our free due diligence checklist into your hedge fund's development and operations.
All investors solicited by general marketing must still be accredited in order to invest in a hedge fund. Hedge funds with a 3(c)(1) structure are limited to 99 investors. Funds with a 3(c)(7) structure can now have 1,999 investors, up from the previous limit of 499. However, all investors in a 3(c)(7) fund must be qualified clients (i.e, at least $5 million net wealth).
Old Rules Apply to Non-Registered Investment Advisers
Hedge funds are no longer banned from marketing themselves to the general public. The current draconian rules that prevent hedge fund managers from putting information on their website still apply to hedge funds run by fund managers not registered as an investment adviser, either with the SEC or a state regulator. The remainder of the information on this web page does apply to hedge fund managers who are not registered with either the SEC or a state regulator.
Raise Capital and Avoid Illegal Offers of Your Hedge Fund What good is the best performance record around if few people know about it? Marketing and promotion are vital for a private fund to succeed. However, unlike other businesses significant restrictions exist for private funds. Only registered, listed funds (e.g., mutual funds) may market themselves to the general public. Non-registered, private funds must market themselves and their performance records in a discreet, non public manner. Private Funds Private offerings (funds) in virtually all countries are exempt from registration requirements. In nearly all countries exempt funds are subject to limits on the manner of offering; the number and types of purchasers and offerees; the resale of the purchased securities; and in many cases the amount of money raised during a specific time period.
What Creates Illegal Offers? Marketing to the general public is not allowed for private funds. The general public is everyone in the world except people and institutions with which you have established a pre-existing relationship. Promoting a private fund in a public chat room or other public forum is a public communication and illegal in most countries.
Internet Marketing Quantitative traders aside, fund managers and their investment advisers may well be the most technologically competent players in the fund industry. Once a private fund is established the question arises about use of the Internet to attract investors. Marketing your fund through a website is viewed as an offer to the general public if anyone can access the message. It is possible to avoid an illegal offer when your fund has a secure website allowing password protected access to clients or pre-qualified prospects.
Internet Offers Many countries do not treat information presented on a website as an offer unless it contains both detailed information and a means to subscribe (e.g. a subscription agreement). Other countries treat less detailed information as an offer but do not consider the offer to be made unless the information on the website is targeted at their residents. There are some countries that consider it an offer simply if any information is viewable by their residents. Countries in the latter group are not likely to target the issuer for enforcement activity unless there is evidence that the offer is targeted at their residents in some way. Countries concerned with Internet offerings and enforcement also show interest in the elements of push-pull marketing and volition. If a viewer "pulls" the information from the Internet, the information may not constitute an offer. If the information were "pushed" at the viewer (e.g., through e-mail) the information would treated as an offer.
U.S. Private Funds In the United States, use of the Internet raises tough issues for funds. Absent special safeguards, the SEC views information about a fund spread over the Internet as general advertising and solicitation, which is problematic from a legal standpoint as the Securities Act of 1933 prohibits any form of general solicitation or general advertising on behalf of a private fund. When selling a private fund through the Internet, good planning is needed to avoid legal headaches. Under very limited circumstances the SEC permits a password protected website to provide information about a fund. At a minimum, fund web sites need to ensure fund information is available only to pre-qualified accredited investors and is password protected. Self-certification by potential investors of their status as an accredited investor is not allowed; rather, fund managers must evaluate and screen prospects through questionnaires and in-depth phone calls. The private fund's name cannot be disclosed except in materials that can be accessed only by pre-qualified accredited investors through a password. Finally, pre-qualified accredited investors should not be allowed to invest in the fund until 30 days has passed since they were qualified.
Hedge Fund Databases There are many website today that allow accredited investors to scan, monitor and contact the managers of the funds listed. These sites and services have proven to be an effective way for fund managers to obtain investors and prospects. The SEC has advised that a private investment adviser posting information about a private fund on a restricted access web site is not holding itself out generally to the public. Procedures must be in place to limit access to web site information to accredited investors. Private fund managers can post information related to a private fund but cannot offer other services or products on the site. Internet use to provide information about an adviser's services would be holding out.
Procedures for Internet Offering SEC guidance indicates the following criteria are necessary to ensure the mere posting of information on a website is not a public advertisement: the website is run by a broker registered with the FINRA or affiliated with such a registered broker; the website requires a password to gain access; requires the broker to have a pre-existing, substantive relationship with the prospective investor; and the website requires the person signing up for access to the service be qualified as an accredited investor.
Create a Paper Trail Use questionnaires to establish or determine preexisting relationship, accredited investor status, sophistication, business experience, and/or prior investment with issuer. Questionnaires are helpful in terms of proving general marketing did not take place. SEC guidance indicates that a pre-existing, substantive relationship with the prospective investor can be established through a purchaser questionnaire providing sufficient information to evaluate the offeree's sophistication as an investor and financial situation. You must maintain adequate records of the number and names of the persons contacted in connection with your offering and of the nature and extent of your relationships with them. The goal here is to be ready to demonstrate that a solicitation was controlled, private, and not indiscriminate.
Selling Agreements Fund marketing has evolved into an industry of its own. Registered brokers are entitled to distribute private fund information to their own customers even though the fund itself has no pre-existing relationship with the broker's customers. Different rules apply to brokers and for that reason many funds attempt to raise capital with their assistance. Brokers enter into selling agreements with fund managers to find investors for their funds as well as assist with strategy and market positioning. Brokers can identify prospective investors, arrange meetings to pre-qualify prospective investors in terms of overall suitability, accompany managers to investor presentations, prepare marketing materials, follow up with prospective investors, and act as client liaison throughout the investment period. For these services a broker may demand 20% of all fees. The SEC takes the position that the relationship between an intermediary (e.g., broker/dealer, lawyer, or accountant) and the intermediary's client can take the place of the issuer/investor relationship. If you are considering whether to sign a selling agreement, there are a variety of issues to consider. The most important issue for sales in the U.S. market is whether the placement agent is licensed as a broker with the SEC and in the various states in which it intends to solicit investors. The placement agent will be selling securities (your fund) and getting paid and needs to have a license. The reason you can sell interests in your own fund without a sales license to investors is because you are covered by issuer exemption. Note that your staff cannot receive separate compensation for their sales efforts under the issuer exemption.
Obtain Certifications If you use a broker to market and distribute your fund, you should obtain investors certifications to make sure that they qualify for investment in your fund and that statements in the subscription agreement are in fact accurate. Restrict Delivery of Offering Documents Procedures such as those outlined by the SEC should be established to limit delivery of the memorandum to persons who are qualified to invest in your fund. Either one person or a limited number of persons should control access to your fund's offering documents and keep records as to who has received a copy of the offering documents. Release of the offering documents should require the approval of some person or persons who has made a solid inquiry as to the prospective offeree. The Bottom Line While in some ways it is good that no specific criteria exist as to what constitutes marketing to the general public and an illegal offer, fund promoters must make sure their marketing activities do not rise to the level of a public offer. In just about any country, the best way to raise capital for your fund is to build on existing relationships. Use direct personal contact to identify prospective purchasers or to establish preexisting business relationships in the legal sense. A preexisting relationship is not an absolute requirement especially in situations where only a very small number of persons will be solicited. In larger offerings, however, if there is a preexisting relationship it is less likely that the larger numbers of offerees will result in unlawful public solicitation and illegal offer. The preexisting relationship can exist with either the issuer or its professional intermediary.
Our Customers
We would like to thank Hannah and the company for their invaluable help in forming our incubator hedge fund. They were extremely knowledgeable, efficient, and professional while working with us, and we are glad to have them as a vital resource as we grow our incubator hedge fund into a full-fledged one. Dale Angus, Golden Egg Capital Management LLC. March 28, 2012.
Advisers Act Rule 206(4)-1 and SEC interpretations of it prohibit registered investment advisers from engaging in a variety of advertising practices, including the following: (i) referring to any testimonials regarding the registered investment adviser; (ii) disclosure of past specific securities recommendations (e.g., portfolio company investments) that were or would have been profitable without disclosing all past recommendations or investments made by the registered investment adviser over the course of the prior one-year period (i.e., no “cherry picking” allowed); and (iii) providing clients or investors with a track record of the registered investment adviser’s performance unless all returns are calculated net of investment advisory fees, performance fees (including carried interest) and expenses.
While these rules technically apply only to registered investment advisers, unregistered advisers should be aware that the anti-fraud rules apply to all investment advisers.
Marketing Prior Performance by Registered Investment Advisers
SEC no-action guidance provides that performance of funds or accounts managed at a prior job can be used by a registered investment adviser: (i) the investment personnel who manage the relevant accouat the Successor Adviser were primarily responsible for achieving the prior performance results, and no other person played a significant role in achieving the prior performance at the Prior Adviser; (ii) the accounts managed at the Prior Adviser are sufficiently similar to the relevant fund or account such that the comparison is meaningful and relevant to investors; (iii) the performance of all accounts managed in a substantially similar manner at the Prior Adviser is included (unless the exclusion of a fund or account would not result in materially higher performance); (iv) the performance information is presented in conformity with the performance advertising rules described above; and (v) the advertisement includes all relevant disclosures (e.g., that the performance results were from funds or accounts managed at a Prior Adviser). In addition, the Successor Adviser must have access to all documents that are necessary to form the basis for or demonstrate the calculation of the performance of the relevant funds or accounts at Prior Adviser.
Our Customers I wanted to thank you and your staff for the professional and timely services that you provided in setting up a CTA business. As an individual trader for almost 20 years I have a full grasp of markets but had very little knowledge in setting up a trading business for clients. Everyone at your firm was extremely friendlyand helpful in giving me guidance in this new startup. Your prices were fair and while I looked at different firms to handle the process yours was head and shoulders above the rest. Thanks so much, Sxxx Sxxxr Managing Partner Sxxxxx Capital Management LLC. June 18, 2010.
CapitalManagementServicesGroup.com is recognized by discriminating fund managers and businessmen as being the foremost tax and legal authority in the business. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge funds creation and management platforms, and the complex body of related tax laws. Ms. Terhune's extensive knowledge and experience have made her an indispensable resource for serious hedge fund and business professionals. Ms. Terhune's articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read about the above matters, Ms. Terhune has written about them.
Give us the opportunity to use that knowledge and experience for you. We have both regulatory experience and the understanding of the foreign exchange and securities markets. We know how to navigate the compliance with rules and regulations in the United States as well as in regulated jurisdictions such as United Kingdom, Singapore, Hong Kong, Canada and the British Virgin Islands. Each client receives personalized attention from our attorneys and staff. No client is too large or small though because of our boutique size. We pride ourselves in providing personal attention to each client.
CMSG provides the best services and support needed for hedge funds and business projects. No need to coordinate work between different firms--we handle the entire business process from start to finish. We offer accounting, tax planning services, tax return preparation, business consulting, and U.S. and international company formation services. Our professionals provide the highest quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you. Read our Leading Media Articles, Customer Testimonials and learn more About Us.
Personal Consultations You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund and international tax attorney. Ms. Terhune's hard-earned knowledge and experience can be put to work to save you unnecessary steps and costly wasted effort. The consult is an invaluable opportunity to speak to Hannah one-on-one, and learn how to achieve more in less time. As a result, you can anticipate that the return on your investment will far outweigh the costs associated with our unsurpassed services. Ms. Terhune's credentials reflect an invaluable resource that combines a well-informed professional practitioner with sound ethical judgment that cannot be over-estimated. The expertise required to recommend best solutions and provide sound advice should never be taken lightly. We are confident that when you are finished with your consultation, you will be impressed and more informed about your business plans than ever before. Call (307) 213-4732 or Click Here to Request Services. Our Commitment Henry David Thoreau wrote: "Do not hire a man who works for money, but him who does it for love of it." We are committed to your business plans and bringing you the best possible options. We are an established and internationally recognized business that serves and educates our clients throughout the industry. We do this by striving for the best results. Above all, we are a law firm. A lawyer is a philosopher and role model. The ability to improve our clients' lives is a privilege that we do not take lightly. There is tremendous power in being able to effect a positive change in our clients' lives. Our aim is to welcome our clients and to provide a comfortable, warm environment for all. Thanks for visiting our website. We hope to have the opportunity to serve you.