Why Can't I Invest in Hedge Funds?
For years, the SEC has had a rule in place blocking the "Average Joe" from investing in a hedge fund.
In order to invest in a hedge fund, the SEC says, you must have at least $1 million dollars in assets, including the value of your home.
The funny thing is that the SEC has said that they want to RAISE the criteria for investing in a hedge fund. The SEC has said that they want the bar set higher, so that you must have $2.5 million in LIQUID assets (excluding the value of your home) if you wish to invest in any hedge fund.
The SEC's position is that hedge funds are risky, and they don't want your Average Joe's getting wiped out by investing in a hedge fund.
I have several problems with this argument:
1. It's my money. I can go to Vegas and gamble away my kid's college fund and down payment on my house but I can't invest in a hedge fund, cause you are worried about me? Come on. Maybe you'd feel better if I invested 100% of my net worth in a bunch of penny stocks?
2. Just because you have a lot of money, doesn't mean that you are a sophisticated investor. If my parents died and left me $10 million dollars, would that make me a sophisticated investor, sophisticated enough to invest in a hedge fund? Is Britney Spears worthy of investing in a hedge fund, and I'm not? That's what the SEC is saying.
3. Hedge funds, for the most part, are managed by the smartest traders and investors in the world. I want the best in the world managing my money. Just because I'm not worth a million shouldn't mean that I should have to settle.
Just another example of how the rich get richer, and it is incredibly unfair. It's good to know that the SEC is "looking out" for me (read hedge fund rules, pattern daytrader rule.)
Filed under: Stock Market Education | General Knowledge