"Most hedge funds aren't set up to be the large mutual- fund complexes with call centers and everything else that handle huge influxes," Nolte said. They may not change their approach to include mass marketing through billboards and television advertisements because they already have a client base and are protective of revealing too much about their investment strategies, he said.
Competitive Imbalance
The SEC proposal creates a competitive imbalance because it doesn't standardize how private funds can advertise their performance while mutual funds have restrictions around such claims, said Mercer Bullard, an associate professor of law at the University of Mississippi.
Mutual funds are valued on a daily basis according to regulatory requirements while hedge funds have fewer mandates on when and how to mark their assets, said Bullard, who's also founder of the investor-advocacy group Fund Democracy.
"There could be investor confusion between which ads are for which types of products," said Bob Grohowski, senior counsel for the ICI.
Private funds should be required to state in their advertisements that the investments are distinct from mutual funds and not appropriate for everyone, the ICI said in a May comment letter. The government should restrict performance claims and increase the $200,000 income threshold for who qualifies as an accredited investor since it was set in 1982, the trade group said. The SEC didn't include those recommendations in its proposal.
"Some of the more traditional mutual-fund managers should feel very threatened by this," Bullard said.