Comments on: What exactly is a “sophisticated” investor anyway? http://allaboutalpha.com/blog/2010/02/21/what-exactly-is-a-sophisticated-investor-anyway/ A finance blog about hedge funds, portable alpha and alternative investing. Thu, 09 Feb 2012 19:03:08 +0000 http://wordpress.org/?v=abc hourly 1 By: Eric Hirschberg http://allaboutalpha.com/blog/2010/02/21/what-exactly-is-a-sophisticated-investor-anyway/comment-page-1/#comment-238972 Eric Hirschberg Fri, 05 Mar 2010 21:16:56 +0000 http://allaboutalpha.com/blog/?p=10015#comment-238972 Having run an institutional Hedge Fund, it quickly became apparent that the notion of only allowing "sophisticated" investors was really a substitute for not allowing "unsophisticated" investors. This is because the looser regulatory environment did not allow for the same levels of investor protection that could be presumably relied upon under greater regulation and oversight. That said, a common argument used be sophisticated investors when faced with a loss is estoppel. So we are sophisticated until we are wrong, in which case we relied on your "misrepresentation" (so much for the role of Due Diligence!). Lack of regulatory oversight is not congruous with the ability to abdicate ones responsibility for outcome. Rather than comparing the skills that constitute sophisticated vs unsophisticated, I prefer to look at the problem from the ski slope prospective. The Double Black Diamond is there to tell you that their is a reasonable chance that you won't get down uninjured. Your choice of going their is one of your own self assessment and risk tolerance. Double Black Diamonds are the Ski resorts attempt at self risk regulation. The Market requirement for sophistication is equivalent to the ski resort saying " don't go down this double black diamond if you aren't wearing skis and holding poles". I don't believe it ever implied anything more. Having run an institutional Hedge Fund, it quickly became apparent that the notion of only allowing “sophisticated” investors was really a substitute for not allowing “unsophisticated” investors. This is because the looser regulatory environment did not allow for the same levels of investor protection that could be presumably relied upon under greater regulation and oversight. That said, a common argument used be sophisticated investors when faced with a loss is estoppel. So we are sophisticated until we are wrong, in which case we relied on your “misrepresentation” (so much for the role of Due Diligence!). Lack of regulatory oversight is not congruous with the ability to abdicate ones responsibility for outcome.

Rather than comparing the skills that constitute sophisticated vs unsophisticated, I prefer to look at the problem from the ski slope prospective. The Double Black Diamond is there to tell you that their is a reasonable chance that you won’t get down uninjured. Your choice of going their is one of your own self assessment and risk tolerance. Double Black Diamonds are the Ski resorts
attempt at self risk regulation. The Market requirement for sophistication is equivalent to the ski resort saying ” don’t go down this double black diamond if you aren’t wearing skis and holding poles”. I don’t believe it ever implied anything more.

]]> By: Monday’s Caught On The Web - The Source - WSJ http://allaboutalpha.com/blog/2010/02/21/what-exactly-is-a-sophisticated-investor-anyway/comment-page-1/#comment-236879 Monday’s Caught On The Web - The Source - WSJ Mon, 22 Feb 2010 08:13:59 +0000 http://allaboutalpha.com/blog/?p=10015#comment-236879 [...] All About Alpha: What exactly is a “sophisticated” investor anyway? [...] [...] All About Alpha: What exactly is a “sophisticated” investor anyway? [...]

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