Thursday, 5 May 2016
Last updated 21 min ago
Apr 23 2012 | 8:58am ET
Don Steinbrugge of Richmond, VA-based Agecroft Partners says the end of the ban on hedge fund advertising will have both positive and negative consequences for the industry.
The JOBS Act, recently signed into law by President Obama, instructed the Securities and Exchange Commission to eliminate the ban on general solicitation and advertising of hedge funds within 90 days of the Act becoming law. While hedge funds will still be allowed to accept investments only from accredited investors, Steinbrugge, whose company is a third-party hedge fund marketer, says they may soon begin to advertise in newspapers and magazines and on television.
On the plus side, says Steinbrugge, the ability to advertise may be the catalyst that helps the industry fully recover from the 2008 financial crisis.
It should also prompt the SEC to provide “greater clarity” as to just what sort of information hedge funds are free to provide. Current regulations, he says, are both conflicting and open to interpretation. For example, he says, a conservative interpretation of Regulation D of the Securities Act of 1933, which governs hedge funds, would maintain hedge funds could not communicate to the media on any subject, participate in databases or include contact information on their web sites. But hedge funds which are registered with the SEC—and many are—must submit detailed information about their organizations, which is available to the general public on the SEC web site.
Another plus will be a wider audience for the hedge fund industry, allowing it to reach out, particularly, to high-net-worth individuals. But the entry into the market of less sophisticated investors (the bulk of hedge fund investors today are ultra-high-net-worth individuals and institutions with, says Steinbrugge, “typically a high degree of investment knowledge”) could attract “shady” hedge fund managers hoping to take advantage of them.
Steinbrugge says most hedge funds will take a “wait and see” approach to the issue and watch to see how other funds respond—what information they disclose on their web sites, what sort of public relations and/or advertising strategies they adopt, etc.
But some hedge funds will not modify their marketing strategies—some because their funds are closed to new investors, some because they consider their process proprietary and don’t want to reveal it to competitors, some because they fear advertising to the general public will damage their “brand”, and some simply because they don’t want to be “distracted” by retail investors which, says Steinbrugge, is why many hedge funds have high minimums in the first place.