Thanks to a little-noticed provision tucked into the just-signed jobs bill, hedge funds may soon be making a bold move into marketing—and the mainstream.

The JOBS Act, signed by President Obama on April 5, lifted a decades-old restriction on how hedge funds can go after new investors, clearing the way for managers to speak more publicly about their strategies and performance and even to advertise.

As private investment vehicles, hedge funds aren’t required to meet the same disclosure requirements and risk restrictions as ordinary mutual funds. In return, they may deal only with experienced, high-net-worth investors, and have long been banned from marketing themselves to the general public.

Read the full story here.

The Joseph Branch Excellence in Teaching Award was presented to Professor of Law Ahmed Taha, who specializes in the regulation of consumer financial products and empirical studies of the behavior of judges and litigants, at the Founders’ Day Convocation on Feb. 17 in Wait Chapel.

Professor Taha is a frequent contributor to Forbes.com, where he writes about contemporary issues within the field of investments.

He has had a number of other scholarly works published as well, including a study that brought to light the misleading nature of many mutual fund advertisements that garnered national attention. Professor Taha’s research has also been cited in multiple national media outlets, including the Wall Street Journal, the New York Times and the Chicago Tribune, among others. His research reflects both his training in law and in economics in which he holds a Ph.D.

Professor Taha teaches Civil Procedure, Business Organizations and Antitrust, among other courses.

“I’m honored to receive the Joseph Branch Excellence in Teaching Award,” he said. “I very much enjoy teaching and the daily interaction that I have with students at Wake Forest.  Also, throughout academic career, my colleagues here have been wonderful mentors and have provided frequent, invaluable teaching advice to me.”

Prior to joining the Wake Forest law faculty in 2002, Professor Taha was an attorney in the Antitrust Division of the U.S. Department of Justice in Washington, D.C., an associate with Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif., and a corporate finance analyst at McKinsey and Company in New York.

“Professor Taha takes complex concepts and makes them accessible to students,” says Executive Associate Dean of Academic Affairs Suzanne Reynolds.   “One Ls come to him skeptical about Civil Procedure, but Professor Taha turns them into believers.   In all his courses, students appreciate his skill as a teacher, his willingness to stick with them until they ‘get it,’ and his wonderful sense of humor.  He pours everything into his teaching, and students love him for it.  At the same time, he is a wonderful colleague, always ready to bring his wit and wisdom to the life of the school.”

Mutual fund companies attract investors with performance advertisements, which highlight a fund’s past returns.  The funds featured in performance advertisements are not randomly selected. 

Instead, advertisements announce funds that have performed well in the past.  You will never see a performance advertisement for a poorly-performing fund, Professor Ahmed Taha writes in his latest column on Forbes.com.

Read the full story »

Mutual fund advertisements are far too effective. Fund companies often promote actively managed funds that have generated high returns, and investors flock to such funds. Unfortunately for these investors, there is little relationship between high past returns and high future returns. Read the full story »

Leafing through newspapers and magazines, I ran into these mutual fund ads:

From Janus: “100 percent of Janus equity funds have beaten their benchmarks since inception.”

From T. Rowe Price: “Proven performance that has stood the test of time. For each 3-, 5- and 10-year period ended Dec. 31, 2009, over 75 percent of our funds beat their Lipper average.” (That refers to the average performance of funds tracked by Lipper, a fund analysis firm.) Read the full story »

Whenever a mutual fund advertises performance, the Securities and Exchange Commission requires that it includes the disclaimer that “past performance does not guarantee future results.” Read the full story »

Mutual funds may need to come with a blunt warning label just like on a pack of Lucky Strikes.

In their quest to recruit Main Street investors seeking above-market returns, fund companies have long relied on newspaper and magazine ads to showcase portfolio managers’ best work. Difficult as that task seemed a year or two ago, the recent bull market has given these firms new opportunities to brag. Read the full story »

In a study that could have far-reaching implications for the more than 50 million U.S. households that invest in mutual funds, researchers have found that mutual fund performance advertisements are misleading investors by encouraging them to buy funds with high past returns.

In the first study to test the effectiveness of the Securities and Exchange Commission’s (SEC’s) regulation of mutual fund performance advertising, researchers at Wake Forest University and Arizona State University found that investors are easily swayed by advertisements touting high past returns despite evidence showing that advertised funds tend to do worse than their non-advertised counterparts in the future.

“A large body of studies has found little evidence that high past returns predict high future returns. In fact, advertised mutual funds even tend to underperform in the market after being advertised,” said Ahmed Taha, a professor at the Wake Forest University School of Law and one of the co-authors of the study entitled “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements.”

We found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund, and had the same expectations regarding a fund’s future returns, as did people viewing the advertisement with no disclaimer whatsoever.

Nearly half of the 116 million households in the United States have money invested in mutual funds, including about 25 percent of all retirement savings. Furthermore, often more than half of mutual fund advertisements appearing in personal finance magazines tout a fund’s past performance.

Taha and one of the study’s co-authors, Alan Palmiter, who is also a professor at Wake Forest law school, are calling for the SEC to consider banning mutual fund performance advertising. Their research showed the complete ineffectiveness of the current SEC-mandated disclaimer in these advertisements, which warns that “past performance does not guarantee future results.”

“We found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund, and had the same expectations regarding a fund’s future returns, as did people viewing the advertisement with no disclaimer whatsoever,” Palmiter said.

The study, which was co-authored by Molly Mercer, an accounting professor at Arizona State University, also found evidence that investors would be more likely to heed a more strongly worded disclaimer that reads: “Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future. Strong past performance is often a matter of chance.”

“Although our study found evidence in an experimental setting that the stronger disclaimer would be more effective, we’re skeptical that it would also work in a real-world setting,” Taha said. “That’s why we believe that mutual fund performance advertisements are inherently misleading and probably should be prohibited.”

“Mutual funds make up a significant portion of our savings and are a particularly important component of our retirement system,” Taha added. “So it’s essential that investors not be misled when choosing among funds.”

By Carol Cirulli Lanham

It is often argued that aggregate hedge fund performance data suffers from a near-fatal flaw: since it is voluntarily reported by the manager, hedge fund indices only include funds that the managers have deemed marketable.  In 2002, David Hsieh of Duke University and William Fung of London Business School wrote a seminal article on this issue called “Benchmarks of Hedge Fund Performance: Information Content and Measurement Biases.”Read the full story »

The law school congratulates Robert (Bobby) Chesney and Ahmed Taha on their promotions to full professor with tenure as of July 1, 2008.

Professor Chesney is a one of the nation’s top emerging scholars in the area of national security law, writing and speaking frequently on topics relating to terrorism. He regularly appears in the national media commenting on terrorism-related legal issues, including National Public Radio, the New York Times, and the Washington Post. He currently serves as the chairman of the Section on National Security Law of the Association of American Law Schools, and teaches a range of courses relating to those topics, as well as courses in Constitutional Law, Evidence, and Civil Procedure.  During his tenure at the law school, he has twice won awards for outstanding teaching.

Professor Taha is one of the rising young scholars and teachers at Wake Forest. His primary research is empirical studies of the behavior of judges and litigants, and the regulation of mutual funds.These works reflect both his training in law and in economics in which he holds a Ph.D.Prior to joining the faculty in 2002, Professor Taha was an attorney in the Antitrust Division of the U.S. Department of Justice in Washington, D.C., an associate with Wilson Sonsini Goodrich & Rosati in Palo Alto, California, a corporate finance analyst at McKinsey and Company in New York, and he has been a lecturer of Law and Economics in the Economics Department at Stanford University.