Lifting Of Hedge Fund Advertising Ban Welcomed

Jul 11 2013 | 8:10am ET

Yesterday's decision by the Securities and Exchange Commission to lift an 80-year-old ban on hedge fund advertising was “decades overdue,” according to Richard Dukas, president and CEO of Dukas Public Relations.

Dukas, whose firm represents hedge funds and other asset managers, is one of a number of industry players responding positively to the SEC's approval of a rule mandated by last year's JOBS Act. Four of the commission's members, including Chairman Mary Jo White, voted in favor of the new rule, with one dissent.

The ruling will "fundamentally change the way hedge funds portray themselves in public,” Dukas told FINalternatives. “Flying below the radar will no longer be in vogue—transparency and openness will be a key aspect of a hedge fund's ability to attract capital.

“Our clients have been speaking about this for years—and we know there’s a lot of pent up demand in the industry to begin marketing more aggressively in select markets.”

Benjamin Alexander, a partner with the Greenberg Glusker law firm in Los Angeles, called the decision “a great step for capital formation.”

“[O]nce effective, the new rule will allow sophisticated investors more equal access to investment opportunities and issuers to communicate more freely with those investors,” said Alexander. “I think that the rule will ultimately reduce the cost of capital formation. Initially, there’ll be some scrambling to develop best practices for complying with the rule’s heightened standard for verifying the accredited status, but I’m glad that the commission is adopting some safe harbors for verification.”

Bob Carbone, CEO of the compliance control provider CrowdBouncer, views the need for investor verification as an opportunity for firms like his:

“One of the measures through which intermediaries can perform reasonable measures is through reliance upon a third-party service that verifies accredited investor status. In other words, issuers can protect against rescission liability by relying upon a third-party verification service to verify accredited status rather than merely relying upon self-certification or doing the diligence themselves.”

But despite the enthusiasm for the decision, Dukas said the majority of hedge funds won't advertise unless they're looking to attract retail investors through alternative mutual fund products.

“[D]on’t expect to see the 'Greenlight Capital' bowl on New Year’s Day,” said Dukas. “Keeping an air of exclusivity is essential in maintaining a fund's credibility in the market.”


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