T T Investments manages a non-public hedge fund that, as stated in the fund prospectus, focuses on investing in distressed debt. The managers of T T have decided to expand the fund's focus by investing in start-up companies. The majority of the clients have been invested in T T for many years, and a few clients are still in lock-up periods. According to the Code and Standards, the managers:
1) must inform prospective clients but not any existing clients of the change to the fund's focus because investors in hedge funds know that the style can change without notice at the discretion of the managers.
2) must inform both existing clients and prospective clients of the change to the fund's focus.
3) must inform prospective clients but not the existing clients who are no longer in a lock-up period of the change to the fund's focus.
4) do not have to inform either existing or prospective clients of the change to the fund's focus because the firm is a non-public hedge fund.