When it comes to investing, hedge funds can do almost anything. They just cannot talk about it.
"The secret is out. Hedge funds exist," said Goldstein, a former civil engineer who with a partner in 1992 founded Bulldog Investors, which manages about $500 million. "It is absurd to treat this like classified information," he said.
But lawyers and managers also worry that their push for more openness might fall on deaf ears now that many hedge funds are suffering losses and weaker financial markets are being blamed for slow growth plus job losses.
Perrie Weiner, a partner and international co-chair of the law firm DLA Piper's securities litigation practice, said hedge funds were always in the line of vision of the Securities and Exchange Commission, adding that "the climate is just so unsettled that I can't imagine any standards being relaxed now."
Kevin Callahan, an SEC spokesman, declined to comment.
Still, managers like Goldstein are pressing their fight to post basic information on how their funds are performing, how they make money and who they employ on their Web sites.
But rules dating back to the 1940s, originally designed to keep everyone but the wealthiest investors from buying hedge funds, prohibit the funds from advertising or marketing to solicit new customers, and they are vigorously enforced.
Many managers and their lawyers are so fearful of running afoul of regulators over the rules that they prefer to say nothing at all about returns or strategies, perpetuating the industry's reputation for being extremely secretive.
Goldstein and others say the rules infringe on their freedom-of-speech rights and argue that there is no harm in finding out a little more about an industry where assets doubled in the past three years and 9,000 funds are wooing new investors.
At the very least, they say, managers should be allowed to share basic information with anyone who might be interested.
"Figuring out who the good managers are can be hard, and so finding ways to create more transparency in the industry would be a good thing," said a partner at $40 billion hedge fund who asked to remain anonymous to avoid drawing the ire of regulators.
Three weeks ago, the industry's lobby group, Managed Funds Association, weighed in on the battle and asked regulators to loosen the rules in a seven-page letter with footnotes to Christopher Cox, the SEC chairman.
"We want to be able to disclose certain information which could not be construed as a general solicitation," said Richard Baker, a former Republican U.S. representative from Louisiana, who now heads the group. "We are trying to find a way to be more transparent."
No one is asking regulators to ease restrictions on who can invest in hedge funds, managers said, agreeing that hedge funds which often ask for $1 million minimum and lock money up for years are inappropriate for retail investors.
In fact, the Managed Funds Association is suggesting that regulators make it more difficult to buy hedge funds by lifting the minimum investment to $1.4 million from $1 million, Baker said.
Even investors like pension funds and endowments, for whom hedge funds are appropriate, would like to search more efficiently for prospective funds and would welcome the chance to find more basic facts fast, several chief investment officers said.
Now they rely mainly on tips from consultants and picking up the phone and calling around themselves, they said.
"I didn't sense a lot of flexibility on their part and I am a lot less optimistic," Goldstein said. "It is likely the matter will have to be resolved in court," he added, hinting that he or someone else might file another lawsuit to push the issue.
But short of a court ruling, many lawyers expect to see very little movement on hedge fund advertising for now.
"Advertising will come, but it is a long way away and will come only after a more comprehensive review of the industry and more rule-making for the industry," said Timothy Mungovan, a partner in Boston who works with hedge funds at the law firm Nixon Peabody.
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