Marketwatch – Hedge funds are mainstream. Once fanciful fodder for cocktail conversation and ego-driven symbols of whose portfolio is bigger, hedge funds have joined the ranks of Joe Sixpack.
Morningstar, the mutual fund data and tracking organization, and Research magazine find in a new study that most advisers place their clients in hedge funds, even though they don’t particularly understand the structure. In fact, many advisers aren’t even sure if their clients are qualified to invest in them.
Still, hedge funds are the product de jour and they are about to go from Wall Street elite to Main Street, even if Main Street isn’t particularly prepared.
Hedge funds are private investment vehicles that are supposed to be sold only to “accredited” or qualified investors. An accredited investor is someone who meets certain income and wealth standards. However, one-third of the financial advisers surveyed indicated that the qualification isn’t relevant today.
Investors can pretty easily circumvent the “accredited” provision. Morningstar and Research don’t say this directly, but intimate such scenarios exist with the finding: “The open-ended responses were grouped as ‘not relevant’ if advisers said the asset threshold for accredited investors is too low, the threshold can be circumvented or it is not an accurate means of measuring investor accreditation.”
