A Jan. 12 article in HFMCompliance titled “Best practice for hedge funds using hypothetical and model performance” outlines best practices for hedge fund managers when using hypothetical performance or model data in marketing efforts, and how managers relying on such data can avoid enforcement actions. Adam DiPaolo, Senior Consultant in Ascendant’s Private Funds group, is quoted in the piece.
Mr. DiPaolo advises managers to make sure disclosures are adequate and prominently displayed in order to avoid pitfalls and regulatory scrutiny.
“Regulators look at model or hypothetical performance as misleading until the manager can cure it, which is to say that the manager included appropriate disclosures and explanations about how the performance figures were generated,” Mr. DiPaolo said.
Mr. DiPaolo also cautions managers against burying disclosures.
“You don’t want to get cheeky and include something small at the end of your materials,” he said. “Disclosures can’t be too difficult for people to see and understand or they will not be meaningful.”
The article can be read here.