Rule 206(4)-1(e)(8)

Definition: Hypothetical performance

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Excerpted verbatim from the rule

Hypothetical performance means performance results that were not actually achieved by any portfolio of the investment adviser. Hypothetical performance includes, but is not limited to: (i) performance derived from model portfolios; (ii) performance that is backtested by the application of a strategy to data from prior time periods when the strategy was not actually used during those time periods; and (iii) targeted or projected performance returns with respect to any portfolio or to the investment advisory services with regard to securities offered in the advertisement.

Source: 17 CFR § 275.206(4)-1 on eCFR.

Edge cases — what counts as this

Brochure

A "model portfolio" return showing what the strategy would have returned over 10 years if launched in 2015.

Why this counts: Backtested. Even if labeled "model" or "illustrative," it’s hypothetical performance under (e)(8) — and on a public marketing PDF, fails (d)(6) for lack of audience eligibility.

How to handle it

Move to one-on-one client conversations only, with eligibility documented; or remove from the marketing material entirely.

Newsletter

"If you had invested $10,000 in this strategy in 2018, you would have $25,000 today."

Why this counts: Even when the strategy has actual live performance from 2018, the "$10,000 → $25,000" framing is treated as hypothetical performance because no actual client started with that exact amount under those exact conditions on that exact date.

How to handle it

Show actual annualized returns for the strategy with appropriate gross/net + standardized time periods. Avoid the "if you had invested $X" framing entirely on public surfaces.

Pitch deck

"Target IRR of 12–15%" for a private fund.

Why this counts: Forward-looking targets are hypothetical performance under (e)(8). (d)(6) applies — needs audience eligibility documentation, conditions/limitations disclosure, and policies governing dissemination.

How to handle it

For private-fund marketing to qualified investors, target IRR ranges may be permissible with full (d)(6) compliance. For retail marketing surfaces, remove.

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