The End Of The Hedge Fund Era?

Sheelah Kolhatkar heralds it:

Most of the advantages their investors once had—from better information to far fewer people trying to do what they do—have evaporated. In the easy, early days, there was less than $500 billion parked in a couple thousand private investment pools chasing the same inefficiencies in the market. That’s when equities were traded in fractions rather than decimals and before the SEC adopted Regulation FD, which in 2000 tightened the spigot of information flowing between company executives and hungry traders.

After 2000, the supposed “smart” money began paying expert network consultants—company insiders who work as part-time advisers to Wall Street investors—to give them the information they craved. The government has since cracked down on that practice, which in some cases led to illegal insider trading.

Meanwhile, Felix Salmon welcomes new rules that end the ban on “general solicitation” by hedge funds:

[W]e’re living in a world where hedge funds are increasingly mistrusted; a bit of openness and transparency will help their cause a great deal. You still need to be an accredited investor to buy in to these vehicles, but anybody at all should be able to visit their sites, look at their numbers, see what they have to say about themselves, maybe even read their blogs and follow their tweets.

For me, that’s the most exciting part of the new world: compliance officers are no longer going to ban hedge-fund managers from joining in the conversation on Twitter, under their own names. As a result, the quality of conversation on Finance Twitter is bound to improve, and smart hedgies are going to realize that Twitter can become the perfect marketing platform for them. If I follow someone on Twitter who seems consistently smart and ahead of the market curve, that’s going to be much more effective, in terms of getting me to invest with them, than any glossy marketing solicitation or television ad.

Finally, Matthew O’Brien strongly advises against investing in hedge funds.