Forget about all the rhetoric you hear on the campaign trail this fall, the Securities and Exchange Commission is taking the job creation dilemma by the horns. It is proposing that a ban on advertising by hedge funds and similar private investment funds be lifted in line with the Jumpstart Our Business Startups Act (JOBS Act), which seeks “to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” It was passed by Congress and signed into law in April.
The bottom line, Jesse Hamilton and Margaret Collins report in Bloomberg Businessweek, is that “hedge funds may go from soliciting individual investors behind closed doors to conducting wide advertising campaigns without restrictions.” The proposal, which was passed yesterday by a 4-to-1 vote, now undergoes 30 days of public comment before a final vote to enact the plan.
“In the past, securities laws allowed firms to market non-publicly traded securities only to so-called accredited investors with whom they have an existing relationship, usually meaning frequent, wealthy investors,” Hamilton and Collins elaborate. “The solicitation rules were designed to protect retail investors from inappropriate risks.”
Lifting the ban would "save us time from having to individually pick out wealthy individuals," Brad Simmons, founder and CEO of ClearMechanic Inc. tells the Wall Street Journal. “But investor groups and state securities regulators criticized the move to lift the ban without introducing changes they said would protect investors,” writes Jessica Holzer, “such as raising the income and net-worth thresholds for those allowed to participate in the deals or requiring funds and firms to prove that the targets of their advertising meet the criteria.”
Indeed, assuming that whatever the public says over the next month doesn’t cause the SEC to backtrack, are we about to see money market titans such as Carl Icahn and Nelson Peltz pitching their funds on late-night infomercials? (“Tired of those anemic 0.1% returns on your saving accounts? Have I got a deal for you....”)
After I wrote that, I came across a piece by the Wall Street Journal’s Suzanne Vranica in which various Mad Ave. execs proffer their advice to the burgeoning hedge fund marketers. John Butler, executive creative director of Butler, Shine, Stern & Partners, suggests –- you guessed it -- long-form videos featuring the fund's portfolio manager. But even Mad Ave. sees limits.
“Don't look for them on bus benches or in the Yellow Pages,” Andrew Tangel writes in the Los Angeles Times. And Howard Fisher, who manages about $500 million as founder of Basso Capital Management, tells the New York Times’ Azam Ahmed that he doesn’t anticipate doing any mass mailings. He sees other possibilities, however, such as getting credit for sponsoring local charities. Or “maybe” taking out an ad in Hamptons magazine.
Sardonically licking its chops, Dealbreaker.com has a story carrying the hed: “New SEC Rules Practically Require Hedge Funds To Advertise On Dealbreaker.” Writes Matt Levine:
“Soon you will be able to:
If you’re an agency type looking to land some new business, you probably have some questions. Fret not. The SEC staff has you covered with an FAQ. For instance, you’re probably wondering if the JOBS Act affects the application of the SRO Rules regarding pre-publication review of research reports by non-research personnel or an emerging growth company. Well, there’s a answer to that: “NASD Rules 2711(b)(2), (b)(3), (c)(1), and (c)(2) and corresponding NYSE Rules 472(b)(2), (b)(3), and (b)(4), which address these issues, are not affected by the JOBS Act.”
The New York Post’s Michelle Celarier writes in her lede that the SEC “struck a blow at the mutual-fund industry and propped up hedge funds at a time when competition for investment dollars is getting stiffer and stiffer.” She writes that the Investment Company Institute, which represents mutual funds, was the main opponent of the change. “Misleading advertisements by private funds have the potential to confuse investors [in all types of funds],” ICI boss Paul Schott Stevens says.
“There is some concern that there are fraudsters out there who want to play fast and loose with the truth,” David Lopez, a partner at the law firm Cleary Gottlieb Steen & Hamilton, tells the New York Times’ Ahmed. “You worry that the least sophisticated within this universe of accredited investors may be approached with investments that don’t suit them.”
Oy. I’ve already got my hands full worrying about youngsters texting arrangements to hook up at Electric Zoo while navigating the Hutch in their parents’ BMWs and pfishers determined to trick me into divulging my PayPal password. Now I’ve got to worry about hedge fund fraudsters?