As the manager of The Pawleys Dividend Fund and The Pawleys Growth Fund, I am excited.  Effective today, a ruling by the Securities and Exchange Commission will lift an age-old ban on advertising by private investment funds.  Mandated by Congress last year as a part of the Jumpstart our JOBS Act, the change removes restrictions on business growth and capital formation.  By allowing private funds, including hedge funds, to publically solicit for new investment dollars, the new rule will free capital formation within the economy.  The additional stimulus will lead to growth and the creation of new jobs.  Last year, the SEC started accepting comments from the public about the new ruling to finalize the structure.  Investor advocates are concerned that people may be unable to evaluate risks associated with investing in private funds.  To protect investors from fraudulent offerings, the SEC added a brand new “bad actor” rule that disqualifies individuals with certain criminal convictions or prior fraudulent activity from offering these securities.

In reality, hedge funds and privately offered funds are only open to high net worth clients who tend to have more experience investing, and hence can evaluate sophisticated funds.  Each Pawleys fund carries a $100,000 initial minimum investment, and both fall under the new ruling.  Investor advocates are concerned, but the added transparency is a huge bonus for the public.  Managers who have delivered solid performance can now shout it from the rooftops and be recognized for their results, and those managers who fall behind will be revealed.  I provides complete transparency to my investors by publishing all portfolio holdings.

Until now, it has been virtually impossible to find general information about hedge fund and private equity investments.  Websites that publish information lock out the public by requiring usernames and passwords to gain access.  The new transparency will make information more readily available to prospective investors, making it easier to compare different funds.  The ruling applies to funds that are not registered with the SEC, but are formed under Regulation D Rule 506 of the Securities Act of 1933.  To improve their ability to monitor the market and protect investors, the SEC has also incorporated additional filing requirements for unregistered funds.

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

Defining a “hedge” fund is no easy task.  Historically and technically, a hedge fund is a pooled investment vehicle designed to “hedge” or offset potential losses of long equity positions during  a stock market downturn.  Sounds like insurance, right?  You could also just exit all of your stocks and sit in cash like many do, sell the market short, or sell call option contracts or buy puts, to accomplish the same objective.  In reality, a hedge fund is a security that is issued as a private placement according to Regulation D of the Securities and Exchange Commission, most commonly under Rule 506.  This means the securities are exempt from certain disclosures, and may be structured in a variety of ways, including as Limited Liability Corporations or Limited Partnerships.  Hedge Funds are only available to sophisticated or, as the SEC definition goes, “Accredited” investors, worth at least $1 million excluding the primary residence or $200k net income for singles or $300k for married couples (please call me for complete guidelines).  Since issuers are only required to complete basic information about the offering on the Form D filing, the SEC takes the position that investors should possess a certain level of sophistication.

So how cool is it to go to a cocktail party or celebrity fundraising event and brag about the many hedge funds you own?  Pretty cool until you look at the historical returns.  Why are some of the returns so low?  The standard fee paid by investors in a hedge fund is 2% annually plus 20% of any gains.  Ouch.  Now you know how many of the big hedge Fund cats pay for their mansions in Connecticut and palladial beach houses in  the Hamptons.  There are a select few hedge fund managers that take only reasonable fees, and work really hard to make money for their investors.  I am one of them, and I am proud to work hard to achieve good, consistent returns for my investors.

So how do I do it?

1.  Obsessed with numbers

2.  Six-Sigma and Lean Training – makes stock picking process repeatable and consistent

3.  Ability to impart discipline

4.  Building a great product that truly benefits the customer will lead to sustaining growth for my company

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

Risks and Disclosures:

This information regarding our services is not an offer of securities or investment advice and is provided solely for prospective clients to contact us. Past performance does not indicate future results and you may incur losses.

The Limited Partnership Interests offered hereby have not been registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or any applicable state or foreign securities laws. The Interest have not been approved or disapproved by the United States Securities and Exchange Commission (“SEC”) or any state or foreign regulatory authority nor has the SEC or any state or foreign regulatory authority passed upon the accuracy or adequacy of this private placement memorandum or endorsed the merits of this Offering. Any representation to the contrary is unlawful. Please contact Pawleys Capital Management, LLC to obtain a Private Placement Memorandum. An investment in one of the Pawleys Funds presents risks which are outlined in the Memorandum. You must qualify as an accredited investor according to the Securities Act of 1933 (“the Act”). Banks, insurance companies, registered investment companies, business development companies and small business investment companies meet the definition of accredited investor. Natural persons must have an individual (or joint if married) net worth that exceeds $1 million excluding the primary residence, OR income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. Business entities qualify if all equity owners are accredited investors. Trusts must have assets in excess of $5 million, and may not have been specifically formed to acquire the securities offered. Charitable organizations, corporations or partnerships must have assets exceeding $5 million. Please consult with your tax or legal counsel if you have any questions regarding Rule 506 of Regulation D of the Act. Resale restrictions apply.

If you do not qualify as an Accredited Investor, please contact us regarding our Advisory Services which are available with no minimum financial requirements. Advisory clients enjoy enhanced customization of portfolio management and financial planning services. Pawleys Investment Advisors, LLC is a Registered Investment Advisory Company – SEC Firm CRD #155199.