While it is illegal to promote hedge funds, there are ways to indirectly do so. And the SEC is considering new rules that could allow PR more room to maneuver.Hedge funds, one of the fastest-growing corners of the financial industry - one insider calls them the new dot-coms - remain an elusive domain for PR. Vaguely understood by the public, largely unregulated by the Securities and Exchange Commission (SEC), and dabbled in by only wealthy or institutional investors, the $850 billion hedge fund world does not lend itself easily to publicity. For one thing, promoting hedge funds is illegal: Only investors accredited by the hedge funds are allowed to get information about them. If a fund is promoted beyond accredited investors, the SEC can halt money going into it and even level sanctions. Hedge funds are the purview of large financial investors, like investment banks, and the well-connected wealthy who can stomach sharp windfalls. Like mutual funds, their regulated cousins for the common man, hedge funds pool investors' money and then invest in generally high-yield instruments. Without much oversight, pretty much anything goes - financially speaking - when it comes to this investing, according to the SEC, including speculative practices like leveraging that can amp up the risk of big losses. All such funds have high investment minimums - at least $1 million in many cases - that keep them within the domain of accredited investors legally allowed to play their investments close to the chest. Many now are becoming part of retirement funds. The SEC estimates that hedge fund assets have exploded 15-fold since 1993. A Factiva search of "hedge funds" turned up 30,720 media mentions in the 36 months from January 2000 through December 2002, but 34,201 mentions in just the last 19 months. Still, hedge funds seem secretive to the public, says one expert, and even to the business media. "I think there's a perception by the general public that hedge funds are opaque, secretive, and mysterious," says George Lucaci, MD of capital markets at hedgefund.net, a web source for hedge fund news and performance data. "And unfortunately, the media has propagated that myth." "There are rules to how much you can say and when, so they have not traditionally done [PR]," says Howard Zar, IR partner at Porter Novelli, of hedge fund managers. How, then, do the funds promote themselves? They do, in fact, find ways to use PR - though staying within the bounds of the law is tricky. And if proposed rules by the SEC are passed, they might be using PR even more. "Across the board, hedge funds do not want to be seen as working with PR firms," says Ronn Torossian, president and CEO of 5W Public Relations, a New York firm that works with hedge funds (he declined to name any clients). "And I know for a fact that many do it. It's a very small, tight-knit community. Hedge funds need PR. The question is, how can you do it and stay within regulations? ... I see hedge fund PR growing tremendously." Promotional tactics The promotion of hedge funds demands one rule of thumb, really: They can't advertise or engage in general solicitation. Because only accredited investors can come on board, usually hedge fund managers seek out investors among people they know - family, friends, colleagues - and wealthy people, as well as institutional investors. Still, hedge funds can take two approaches to, in a roundabout way, promoting themselves. Hedge funds can publicize the expertise of their portfolio managers if they also manage other registered products. Those managers can talk up the company and the registered products - they just can't talk about any hedge funds the company maintains. "One of the things you often find in hedge funds is people who have a lot of expertise," says Zar. "So they can speak as experts and gain exposure for themselves." A company also can promote registered products that are similar in management to the hedge funds - but, again, it is not allowed to talk about the hedge funds themselves. Richard Dukas, president of Richard Dukas Communications, a PR firm that advises hedge funds, gives an example of these promotional approaches in action. A hedge fund manager his firm counsels, Keller DiLeo Cohen & Co., has about $500 million under management. It also handles M&A arbitrage, and its CIO is an expert in M&A. When speculation over a merger between Disney and Comcast swirled in June, Dukas' PR firm touted the CIO to the media for his expertise in M&A. Media reports involving the CIO noted that he worked for a hedge fund manager, and the reports named the fund. But the key, as Dukas and others point out, is that the hedge fund itself, such as its strategy and performance, was never promoted - only the expertise of its CIO. This promotion has a two-fold effect. The manager's name is out there, raising visibility and credibility for the hedge fund, Dukas says, and it also bolsters the fund's reputation with existing and potential investors. But one problem with this approach is the subjective nature of whether a company slides into promoting the hedge fund. Promotion, in this case, is like the classic definition of obscenity: People know it when they see it. The SEC does not define what it means by "general solicitation" or "advertising." And what those terms mean to different hedge fund professionals seems to vary. "There's no prohibition: Thou shalt not be quoted," says Michael Robinson, director of Levick Strategic Communications in Washington, DC, and a former public affairs director at the SEC. "But you have to be careful what you say." Without clear guidelines, hedge funds must make their way carefully. "There's not a uniformity of opinion here, but as a general rule, all of these interests and funds are privately placed," says Eliot Raffkind, a partner at Akin Gump Strauss Hauer & Feld, a law firm based in Dallas and New York that works with hedge funds. "There are no sort of black-line tests here under existing laws. So the question is, at what point are you giving so much information to a reporter that you're engaging in general solicitation or advertising? My view is you shouldn't be mentioning the name of your fund; you shouldn't give any of the specifics of the fund." Possible benefits to PR A move by the SEC might make it easier for hedge funds to speak out. In late July, the Wall Street watchdog voted 3-2 to recommend regulations that would subject hedge funds to greater oversight. Fresh regulations could include requiring hedge funds with more than $25 million in assets to register with the SEC, which would mean disclosing asset amounts and financial advisers. Of the estimated 8,000 hedge funds in the US, according to the SEC, about half disclose this information voluntarily. The recommendations are currently open for public comment, and a final decision by the SEC is not expected until at least December. Ironically, more oversight might mean more ability to promote. The greater regulation could mean more business for PR firms, too, according to hedge fund experts. "I believe it's going to make hedge funds more transparent, less secretive," says Dukas. Until then, however, the industry remains a tentative place for PR, where promotion of managers' expertise is the better - and legally safer - approach than direct promotion of the funds themselves. "I think a lot of managers will [do PR]," says Lucaci. "But these have to be very technical interviews. And believe me, the public would understand, the reader would understand, particularly those who are reading financial papers and journals." Regardless of the possible effects on PR, registration with the SEC won't change the audience toward which hedge funds are promoted, explains Kal Goldberg, SVP of Hill & Knowlton's corporate and financial practice. "The audience there," Goldberg says, "will always be the super-high-net-worth individual and the institutions."