As of September 2014, there were 2,691 investment managers registered with the SEC that advised at least one hedge fund, and 1,237 investment managers registered with the SEC that advised at least one private equity fund.*
What conclusions can investors draw from these figures?
First, there are a lot of hedge funds and private equity funds out there.
Second, thousands of offering documents have been prepared to market these hedge fund and private equity investment products.
Third, the quality of disclosure across these numerous offering documents may vary greatly.
Given this variability, based on my experience, here are seven questions to consider when reviewing the offering documents related to a private fund.
- Are the offering documents out of date?
- Do the offering documents contain “stale” disclosure on a manager or its investment fund product?
- Are the offering documents missing key information on a manager or its investment product important to an investor’s decision-making process?
- Are poorly drafted offering documents leading to confused or incomplete investment terms?
- Do the offering documents contain disclosure on material investment terms that are intentionally drafted in such a way to provide investors with just the bare minimum information legally required?
- Is the disclosure related to a particular fund consistent across all of its offering documents?
- Is manager disclosure in a fund’s offering documents consistent with the manager’s regulatory filings?
* Remarks by the Director of the Division of Investment Management – S.E.C., Practising Law Institute, Hedge Fund Management Seminar, September 11, 2014