Tags: hedge fund | marketing | SEC | investing

Hedge-Fund Reviews Find Misleading Marketing, SEC's Bowden Says

Monday, 22 Sep 2014 02:24 PM

Some hedge funds misrepresent their performance in advertising and marketing materials and fail to follow their own procedures for valuing investments, a top U.S. Securities and Exchange Commission official said Monday.

SEC reviews completed as part of a two-year effort involving nearly 200 funds have found cases where potential investors were given only the most favorable description of past performance rather than full disclosure of winning and losing bets, SEC Compliance and Examinations Director Drew Bowden said in a speech at a conference in Philadelphia.

“You can’t cherry-pick your past specific recommendations because there is an opportunity for you, if it’s in your sales and marketing, to pick the biggest winners you ever had,” Bowden said after the speech. “We’ve seen people passing off past specific recommendations that they never made.”

The SEC is close to finishing examinations after the agency gained authority to oversee hedge funds and buyout funds with more than $150 million in assets under the 2010 Dodd-Frank Act, Bowden said. The reviews have found illegal collections of fees or severe compliance shortfalls in more than half of the private-equity firms it has examined since 2012, he said earlier this year.

Bowden declined to say today how many hedge funds were found to have deficiencies and wouldn’t describe the seriousness of findings. Many of the largest hedge funds have “compliance programs that are pretty highly evolved,” he said.

SEC examiners also found examples of hedge funds presenting modeled or back-tested performance as actual results and flipping between valuation methodologies, Bowden said. Hedge funds are supposed to follow their policies for valuing securities and should be careful to disclose the reasons for changing models to investors, he said.

“One of the most common findings we have are that the valuation and policies and procedures aren’t highly evolved and aren’t very specific,” Bowden said. “We’ll see people from quarter to quarter or year to year changing their valuation methodology and managing to pick the one that leads to the highest valuation in their fund.”

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Some hedge funds misrepresent their performance in advertising and marketing materials and fail to follow their own procedures for valuing investments, a top Securities and Exchange Commission official said Monday.
hedge fund, marketing, SEC, investing
335
2014-24-22
Monday, 22 Sep 2014 02:24 PM
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