Common Practices, Benefits and Drawbacks for Hedge Fund Managers of Using Target Returns

The use of target returns or performance targets by fund managers in offering documents and marketing materials will draw scrutiny during SEC examinations. Accordingly, fund managers must take care when using target returns and first consider the potential risks and consequences of doing so. This two-part series considers the advantages and disadvantages of managers’ usage of target returns in their marketing materials. The first article discusses common practices for the use of target returns by hedge funds; analyzes reasons for using target returns; and highlights some potential drawbacks of using target returns. The second article analyzes the legal risks associated with target returns and weighs the benefits of using target returns against those risks. See our three-part advertising compliance series: “Ten Best Practices for a Fund Manager to Streamline Its Compliance Review” (Sep. 14, 2017); “Five High-Risk Areas for a Fund Manager to Focus on When Reviewing Marketing Materials” (Sep. 21, 2017); and “Six Methods for a Fund Manager to Test Its Advertising Review Procedures” (Sep. 28, 2017).

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