It has been two years since the JOBS Act was signed into law, and while the law wasn’t specifically intended to lift the veil that has cloaked the hedge fund industry, according to industry insiders, it is having just that effect.
“It is a much needed modernization of securities regulations,” Mitch Ackles, president of the Hedge Fund Association and CEO of Hedge Fund PR, told FINalternatives. “While we won’t see hedge funds advertising on billboards, what we are already starting to see is hedge fund managers being more comfortable speaking to the media.”
That sentiment is borne out by Deirdre Bolton, who just this week debuted her new show focusing on alternative investing on Fox Business Network.
“Years ago, very few hedge fund managers felt comfortable going on television, but now the JOBS Act has loosened that up, so more people are willing to talk about their positions and their strategies,” said the host of Risk and Reward with Deirdre Bolton. “They are not as afraid of breaking that past rule that nothing can be seen as advertising in any form….so as far as a journalist’s job goes, it is easier.”
Hedgies Love The JOBS Act, But Not Why You think
One change that is a direct result of the JOBS Act is the Securities and Exchange Commission’s lifting of the ban on hedge fund advertising. But while it is now technically legal for hedge funds to advertise, thus far only about three firms have gone this route: Topturn Capital posted a commercial on its website, Capitalist Pig advertised in Crain’s Chicago Business, and Balyasny Asset Management took out a half page advert in Pensions & Investments.
Despite the small number of hedge funds advertising via commercials and traditional print, the law is having a significant impact: Hedge fund managers are being more open with investors.
Since its inception in 2005, New York-based SkyBridge Capital Management, which now has approximately $10 billion in assets under management and advisement, has been one of the more high profile alternative investment firms. Founder and co-managing partner Anthony Scaramucci has always freely engaged with the press. Now with the JOBS Act in place, the firm is taking its openness a step further and offering insight into its investments with a feature on its website that includes a series of short video interviews with its chief investment officer and its senior portfolio manager.
Victor Oviedo, partner and global head of business development at SkyBridge Capital, explained that, "bringing greater transparency to the hedge fund industry has always been an underlying goal of our communications program. However, the JOBS Act has definitely made us more comfortable to explore new, interactive ways of communicating with current and prospective investors.”
In the videos, Ray Nolte and Troy Gayeski talk about the shifts in SkyBridge’s portfolio last year, as well as the firm’s macroeconomic forecast and strategy outlook for this year. Normally this sort of information would only be available to existing investors, and while they are part of the firm’s target audience, Oviedo feels that these videos and other types of open communication will help educate would-be investors and the public in general.
“SkyBridgeViews was launched as an enhancement to our quarterly written communications for clients and other key stakeholders. We expect it to evolve and grow over time," added Oviedo.
Boon To Matchmakers
Service providers are also feeling the impact of the JOBS Act.
Hedge Connection, an online platform that matches hedge funds with investors, has credited the SEC’s move to lift the ban on advertising with a rise in its membership, which has doubled in past the six months.
“The lifting of the ban on advertising has leveled the playing field for hedge funds,” said Lisa Vioni, CEO of Hedge Connection. “We believe that our site growth is directly correlated to this change in law as mandated by the JOBS Act because the level of accessible information has improved dramatically. Hedge funds can no longer hide behind a cloak of secrecy and use the excuse that they risk losing their private placement status if they discuss certain issues during early investor meetings. As a result, mediocre funds will be more easily identified while the great funds will shine,” she added.
Bruce Frumerman, CEO of communications marketing firm Frumerman & Nemeth Inc., which counts both small and large hedge funds among its clients, explained that the primary impact of the JOBS Act on hedge fund firms is not the fact that some strategies can be repurposed into 40 Act funds, “instead, it is that discussion of alternative strategies is further entering the dialogue of the marketplace when it comes to portfolio allocation decision making. So, between the post-crash investment environment and the JOBS Act, investors and their advisors now expect more explanation from hedge fund firms about how they invest.”
Those who fought to keep the ban on hedge fund advertising in place argued that it would be bad for investors, especially for Joe Public, who supposedly wasn’t sophisticated enough to understand the risks of alternative investing. While it is still early days for the JOBS Act, thus far it seems that all players in the investment game are benefiting from the bill, perhaps with investors—including those in the general public—reaping the most benefit in the form of more information.