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Five Things to Ask Before Investing in a Hedge Fund
CNBC.com | April 06, 2012 | 04:35 PM EDT

Marc Freedman, a Boston-area financial advisor, likes to compare hedge funds to cigarettes. Regulations govern how they can be marketed, and to whom; both hedge funds and smokes come with stern warnings about the risks involved; and anyone who wants to buys them anyway—if they can afford them.

By law, individuals must be worth at least $1 million to have access to a hedge fund. Institutional investors are required to have $100 million in assets.

Figured this way, Freedman says, it doesn’t much matter that the JOBS Act, signed yesterday in a Rose Garden ceremony by President Obama, lifts a decade-old ban on advertising by hedge funds and private equity firms. “Whether they advertise or not, there are suitability requirements,” says Freedman, president of Freedman Financial in Peabody, Mass. “Maybe one percent of the population would even qualify to deal with a hedge fund directly.”

Freedman isn’t alone in thinking that worries about the end of the ban are overblown. Defenders of the industry point out that hedge funds won’t likely be advertising in any traditional sense—hiring a Don Draper to put together TV commercials or buying up the naming rights to stadiums. In practice, the effect of the ban was to limit what fund managers could say in public about their products.

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