Psst...wanna buy a registered hedge fund? That's the message that Wall Street Access, a New York brokerage firm that caters to the high-net-worth investor and active trader, is banking on.
The firm has begun running a novel new print advertisement designed to entice both wealthy investors, as well as registered investment advisers (RIAs), onto the lightly trodden path of alternative investments. In the case of RIAs, the firm stands ready to become the broker of record that executes the purchase of these funds for fee-based advisers. Wall Street Access believes it is the first investment firm to advertise a registered hedge fund.
The ad, which is slated to run in three consecutive issues of Financial Advisor Magazine and a special monthly hedge fund section of Barron's, asks readers to consider further diversifying by using registered hedge funds. The ad sings the benefits of the lower $25,000 investment minimum offered by many funds, as well as the risk/returns advantage over long-only investments.
The ad includes the names of three of the funds available for closer inspection by accredited investors, those individuals who by Federal securities law definition have a net worth of $1 million and annual income for the past two years exceeding $200,000, or $300,000 joint income if married. Those funds named include the Rydex Capital Partners SPhinX Fund, Oppenheimer Tremont Market Neutral Fund and Man-Glenwood Lexington Fund.
The ad directs readers to a Web site co-sponsored through a joint marketing agreement between Wall Street Access and HedgeFunds.net, the proprietary hedge fund news and information Web site of HedgeWorld, White Plains, N.Y., which is owned by Tremont Advisers, Rye, N.Y. Tremont was acquired by OppenheimerFunds of New York in 2001.
Interestingly, HedgeWorld launched its own online hedge fund supermarket site 18 months ago and made it available to U.S.-based accredited investors, institutions and financial advisers.
Information about a total of 10 registered hedge funds is now listed at Wall Street Access' joint venture site. But five additional funds, which are registered with the SEC under the Investment Company Act of 1940 and are offered only through private placements, are available to qualified investors or their financial advisers, said Jim Lawler, vice president of the alternative investments division of the brokerage firm. As such, these funds cannot solicit for investors.
Lawler envisions eventually offering access to a total of 20 to 25 registered hedge funds through the Web site, although many of the registered hedge funds that firms proprietarily sponsor and exclusively offer to their clients, won't be available online, he added.
The collaborative Web site, which went live last August, allows Wall Street Access to use a portion of HedgeFunds.net's existing site and tap into its large hedge fund database, while it becomes the broker of record, Lawler noted. "Registered hedge funds, in light of everything that happened last year, are becoming more interesting to investors and RIAs," he added.
But the site isn't designed to simply push product. It also includes articles and tutorials to explain what registered hedge funds are all about. "Although registered hedge funds are getting more press, a lot of individuals don't really know much about them," Lawler conceded. The biggest obstacles are dispelling the myth that these vehicles are highly risky, explaining the differences between hedge funds and mutual funds or other investments, and spelling out how registered hedge funds can lower a portfolio's risk and volatility, he added.
Slowly Gaining Momentum
A new report published last week from Cerulli Associates of Boston confirms that the desire for alternative investments, including both traditional and registered hedge funds, is growing among financial advisers. The report notes that the trend toward fee-based pricing and the increased pursuit of high-net-worth clients is driving financial advisers to seek out alternative investments. Yet, momentum has been slow to build.
Of the advisers Cerulli polled that oversee a collective $8.1 trillion in assets, a mere $35 billion has been tossed into the alternative investments arena, versus the nearly $500 billion packed into separately managed accounts. In 2003, the average net flow into all hedge funds (registered and unregistered) per broker/dealer was a scant $300 million. Moreover, according to the report, hedge funds are still far behind the dollars filtering into higher-commission-paying managed futures and private equity investments.
The good news is that RIAs are the most enthusiastic about alternative investments, allocating on average 2.1% of their assets under management to this investing arena. "RIAs would like to have the biggest stable of product to offer, but their interest in alternative investments is in the nascent stage," said Matt McGinness, associate director with Cerulli. In addition, there is no common trading platform for hedge funds, and information about them is scant. In contrast, the mutual fund industry relies on the National Securities Clearing Corp. of New York to process its trades, and mutual funds have become ingrained in the consciousness of most Americans.
By The Numbers
Nonetheless, SEC-registered hedge funds have been steadily coming to market, although with less fury than in 2002 when many investment advisors first decided to try out alternative investments.
During 2002, a whopping 21 different investment advisors filed for a total of 34 new SEC-registered hedge funds, many seizing upon the popular hedge fund-of-funds style. That's in stark contrast to the year before. In 2001, 10 advisors registered a total of 17 different registered hedge funds with the SEC, at least one of which was subsequently deregistered.
Between Jan. 2, 2003 and the beginning of April of this year, a lesser, but still significant 17 advisors have brought a combined 27 new registered hedge funds to the SEC, although some have yet to win approval with the regulators for launch.
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