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Hedge Fund Performance Advertising

Recent SEC enforcements on use of performance numbers

While performance advertising has long been a focus of the Securities and Exchange Commission, some recently settled SEC enforcement matters are a cause for concern for investment advisers that utilise advertising materials containing performance information prepared by third parties.

In February 2016, the SEC charged Cantella & Co., a registered investment adviser with making misstatements to its advisory clients by utilising F-Squared Investment Inc.’s inflated AlphaSector performance track record in its own advertising materials. Between October 2012 and May 2015, Cantella offered F-Squared’s AlphaSector strategy to its clients. The SEC issued a cease and desist order against Cantella as a result of its use of F-Squared’s performance information in its advertising. AlphaSector is a sector rotation strategy based on an algorithm that yields a signal indicating whether to buy or sell certain industry ETFs that compose the industries in the S&P 500 Index. This investigation originated from an SEC administrative proceeding in December 2014 in which F-Squared admitted that its advertisements falsely claimed that the AlphaSector strategy had a performance history dating to April 2001 when, in fact, its performance history was hypothetical and derived through backtesting.

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.