Unlike mutual funds, which are tightly regulated, hedge funds are loosely regulated and at the present don’t have to register with market supervisory authorities (the SEC and the CFTC, in the United States). Furthermore, hedge funds are not required to provide the same level of disclosure as mutual funds do provide. Therefore, investors cannot easily evaluate the terms of an investment in a hedge fund.

Nevertheless, hedge funds are subject to some level of regulations that vary from country to another. The principal regulations imposed upon hedge funds include the following:

• Type of investors: hedge funds are only accessible to “accredited” investors (whether individuals or institutions) that meet some particular criteria. Hedge fund investors are usually classified into categories: individuals, endowments and foundations, pension funds, and corporate investors.
• Number of investors: the number of partners investing in a hedge fund should not exceed 500 limited partners.
• Advertising: hedge funds are not allowed to solicit clients through conventional channels of marketing and advertising. Instead, they should spread their message using their own means of communication.