The JOBS Act Means More than Ads for Hedge Funds

January 15, 2014 Debbie Jacobs Hedge Fund News

Brooke Harlow

Brooke Harlow of the Managed Funds Association

With the passage of the JOBS Act, the legislation which allowed hedge funds to advertise, there was an expectation that the public would have seen advertisements from funds during the holiday season, or at least a spot during the Super Bowl. Neither of these possibilities materialized, and some observers are asking why not?

Brooke Harlow, executive vice president and managing director of the Managed Funds Association, explains that there are several reasons for this seeming lack of enthusiasm for the new liberalized advertising landscape.

One problem is that, although it is true that the new SEC rules lifted some restrictions for many funds, there are still several other limitations still in place.

“Many SEC-registered managers also claim a registration exemption from the Commodity Futures Trading Commission, and to qualify for the exemption managers are forbidden from marketing interests in commodity pools to the public in the U.S. The CFTC’s rule has not yet been harmonized with the changes the SEC has made, leaving many managers in a regulatory limbo — able to take advantage of the SEC’s rule change but unwilling to endanger their CFTC exemption,” Harlow says.

In addition, as the SEC moved to finalize the rules which will lift the ban on general solicitation, they also proposed other rules that would oversee those advertising activities. As Harlow contends,

“Managers have been given permission to drive on the highway for the first time but with very limited information on the speed limit or the rules of the road.”

As the rules about advertising unfold, fund managers will take advantage of the new SEC rules in other ways than traditional forms of advertising.  As Harlow explains,

“Prior to the SEC rulemaking removing the advertising ban, funds were unable to use the web to tell their story. In fact, many websites were merely landing pages with limited content — often just a login for investors and a contact number for information. Removing the ban allows funds to enhance their web presence to engage and inform visitors, including investors, the media and the public, to better articulate their philosophy, performance history and approach to fund governance.”

The JOBS Act will allow fund managers to take a more relaxed attitude to public speaking.

“Previously, managers had to walk a tightrope when speaking in public to ensure their words could not be interpreted as a solicitation for investment capital. Once they obtain greater certainty of the rules, managers might engage more frequently and at a deeper level, sharing their view of current trends and issues in financial markets. This will also serve to inform the public about how the industry operates and benefits individuals who might not always understand how they are connected to hedge funds,” Brooke Harlow explains.

Brooke Harlow, JOBS Act, SEC,

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