Rule 506(b) vs Rule 506(c)

Almost every hedge fund raises money under Rule 506 of Regulation D, which lets a fund sell interests without registering them with the SEC. The rule has two paths, and the choice decides whether the fund may market itself publicly.

The short version

Rule 506(b): the traditional route

Under 506(b) a fund may not use general solicitation: no public ads, no open websites pitching the fund, no cold outreach to people the manager has no prior relationship with. Investors usually come through existing relationships, introductions and placement agents. In exchange, the fund can rely on investors' own representations that they are accredited.

Rule 506(c): advertising allowed, verification required

Since 2013, Rule 506(c) has let funds advertise publicly, including on websites, social media and directories, as long as every buyer is accredited and the fund takes reasonable steps to verify it. Verification traditionally meant reviewing tax returns or bank statements, or getting a letter from a CPA, lawyer or broker-dealer.

In March 2025 the SEC staff said in a no-action letter that a high minimum investment can support verification: generally at least $200,000 for individuals and $1 million for entities, together with written representations that the investment isn't financed by a third party. That made 506(c) easier for funds with high minimums.

Which hedge funds choose 506(c)?

506(c) is still the minority choice, but it is more common among new managers, who lack an established network: 12% of emerging U.S. hedge funds use it, against 9% of all U.S. hedge funds. Our 2026 launch report tracks the share by launch year.

Can a fund switch?

A fund can move from 506(b) to 506(c) for future sales, but once it has advertised it cannot go back to 506(b) for that offering. Managers should plan the choice with counsel before any marketing.

Why it matters on HedgeMountain

Every fund page shows the exemption from the fund's latest Form D. HedgeMountain publishes verified performance only for 506(c) funds, and sponsored placements are open only to 506(c) funds, because both are forms of advertising.

Figures are HedgeMountain calculations from the latest Form D of each of the 8,516 U.S.-based hedge funds that filed between Oct 1, 2024 and Oct 29, 2026. They describe what funds reported, not what investors earned.

Education, not advice. This guide explains general rules and market practice. It is not legal, tax or investment advice, not an offer or solicitation, and not a recommendation of any fund. Rules change; confirm details with the SEC and a qualified professional. Disclosures