Will hedge fund advertising usher in a new era of investment fraud? Time will tell, but according to this article on MarketWatch, chances are good that it will:
The one thing that might have allowed convicted felon Bernie Madoff to run his phony hedge-fund business even longer in the face of an eroding stock market is successful advertising.With his reputation — which was sterling right up to the moment it was tarnished — the public would have beaten a path to his door if Madoff had been allowed to roll out the general welcome mat as his crisis was coming to a head.
That’s where the concern is, that consumers who are interested in using hedge funds will fall for a slick sales pitch, especially from funds with unproven track records and the greatest need to attract new cash.
“To get to the great hedge fund managers, you have to be a significant player,” said Geoff Bobroff, a fund industry consultant in East Greenwich, R.I. “Those managers don’t need to advertise to attract money and, if they do, it would make you wonder if they were in trouble.”
With that kind of advertising, investors will be best served by ignoring what they see.
And the author of the article is right that the best hedge fund managers will not need to advertise, but the truth is that a lot of good start up hedge fund managers will need to advertise to scale. So it would be wise to avoid throwing out the baby with the bathwater, just because of a few bad apples.