Web 2.0 and Your Hedge Fund

Part 1: Websites

It's no secret that the internet is strategically important in today's business environment, but current regulations dishearten fund managers looking to leverage the internet. What I want to discuss is how to hedge fund managers can use the internet to attract and service investors while staying compliant with all rules and regulations.

The first topic I want to discuss deals with having a website for your hedge fund. There are many benefits to having a website for your hedge fund.

The first is your own hedge fund website can help attract new investors. A well designed website allows you to make a positive first impression with potential investors. But, if your website is poorly put together, it may actually hurt you having an online presence rather than help you. If your website looks like it was designed using free online tools or by a kid in his garage in 1995, you may deliver the message that implies you are a small fly-by-night organization, which you want to stay away from in today's post-Madoff world.

Another benefit to having a website is it allows you to communicate with investors regardless of their time zones and scheduling conflicts. Being that there are so many global hedge fund investors, the last thing we want to do is dissuade a potential client from investing in your fund because they live in Sydney, and you're in the States, and they can't reach you to get the information they need in a timely manner.

Still another reason to have a website is it allows you to keep your investor letters and marketing materials in one central location. I find that this is especially helpful in dealing with larger institutions and fund of funds where the staff turnover tends to be fairly high and each new staff member contacts you for your marketing materials and PowerPoint presentations. With your website, they’ll be able to attain this information whenever they need without having to bother your firm consistently for updates.

Another benefit is your website will also help you in servicing your existing investors. It should instantly provide them with performance information, provide up to date contact information, and potentially provide online access to investor capital statements.

Most importantly for your own hedge fund website is making sure it is compliant with all SEC regulations. In order to do this, you must make sure that only accredited investors can view your fund information. There can be no (I MEAN NO) mention of the limited partnership on the outside of the website where it can be seen by the general public. Even the website URL can't mention the fund name, such as http://www.xyzfund.com/.

When designing your website, you can mention the investment advisor company but not the fund. You can't talk about the strategy you use or the past performance. This mistake is very common. Firms believe that they only need to protect the fund performance, and don’t realize a general fund description is considered a solicitation in the regulators eyes. I can't tell you how many fund websites I have seen that are password protected but still mention the name or strategy of the fund prior to subscription. Lastly, it's against the regulations to post legal documents on-line, and the reason its against the regulations is that hedge fund firms have to keep track of everyone they are sending their legal documents to, and if random individuals are pulling your documents online, it would be impossible to monitor.

So, to conclude, what should your fund website should look like to the general public? Essentially, your website should have no reference to the limited partnership and designed for the general partnership. Immediately, investors should be prompted to either login or register for more information. Also, contact information should be posted for less tech-savvy investors or investors who are comfortable with online registration can contact you. This would be the most compliant format for having a hedge fund website for your firm, no disclosures or advertisements about the hedge fund. There are many other rules to adhere to when putting hedge fund information online, so we suggest you consult an attorney or an experienced web production firm before crafting a new website. You can also review the Lamp No Action letter for more details about the regulations a hedge fund must abide by before putting their information online.

1 comment:

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