TAMPA — Maybe you’re a Tampa Bay Lightning fan. Maybe you’re a Water Street Tampa fan. And maybe you heard that Lightning owner Jeff Vinik is re-opening his hedge fund and thought, “I like that guy. I could see investing some money with him.”
Well, good luck with that. Chances are if you don’t already run in those circles, you won’t be in a position to invest in Vinik Asset Management. Trusting money to a hedge fund is a lot more complicated — and riskier — than investing in a garden-variety mutual fund or managing your 401(k) retirement account. So government regulations limit who can invest to screen out the naive.
Citing securities industry regulations, Vinik said in a Jan. 10 interview that he could not disclose when the fund would open, what the fund’s minimum investment would be, or how much he's looking to raise (though the Wall Street Journal has reported it is $3 billion). Similarly, a public relations firm working with Vinik on the fund had no comment on the fee structure of the fund or what type of hedge fund it is — factors that shape the qualifications for investors.
Vinik did say, “you have to be an accredited investor to invest in hedge funds.”
Under federal securities regulations, accredited investors include individuals with a net worth of at least $1 million, not including their home or debt associated with their home, or an annual income of more than $200,000 by themselves or $300,000 with their spouses.
But even that may not be enough.
Because most hedge funds charge so-called “performance fees” based on how much the capital in the fund grows, their investors have to be what federal regulators call “qualified clients.” Those investors must have a net worth of at least $2.1 million, not including their homes, or have at least $1 million invested in the fund, or be what’s known as a “qualified purchaser.” (More on that in a moment.)
And beyond that, certain hedge funds, depending on how they’re set up and how many investors they have, have an even higher threshold for prospective investors. Those funds are limited only to “qualified purchasers,” who, if they are individuals, must have at least $5 million in investable assets.
The goal of these requirements is to protect people from “getting into things that they don’t understand,” said Alexander J. Davie, a corporate and securities attorney in Nashville who writes the blog “Strictly Business.”
Hedge funds come with less information that’s disclosed publicly about their investments than securities like stocks and mutual funds, Davie said, so the government is essentially saying, “we want you only to be offering this to the types of people who are able to fend for themselves. That’s literally wording from a Supreme Court case.”
“The idea is these are financially sophisticated people,” he said. “They have a lot of money. They have the capability of being able to do their own due diligence on the investment and making the decision. And if they lose the money, hopefully they have other money so they’re not going to starve. Whereas if you have a mom and pop investor and they decide to put it all into a hedge fund, and it goes belly up, then they could lose their whole retirement savings.”
Bruce Pelletier, an investor in Franconia, N.H., got interested in the idea of investing with Vinik Asset Management after seeing Vinik discuss his plans to re-launch his fund this month on CNBC.
Pelletier, 58, had experience with Fidelity’s Magellan fund, which Vinik ran until 1996, and he’s long admired Vinik’s track record and savvy. But even though he has traded professionally on his own for 27 years, he doubts he would be in a position to put money in Vinik Asset Management, which he assumes would have a minimum investment of $500,000 or more.
“He’s probably not just opening another plain-vanilla mutual fund like Magellan,” Pelletier said. “It’s not like he’s going to be advertising in Barron’s. With his reputation I’ve got to think that he’s probably going to have people lining up.”
Contact Richard Danielson at [email protected] or (813) 226-3403. Follow @Danielson_Times