U.S. President Barack Obama today signed into law the JOBS Act, which is meant to encourage startups and IPOs in the country, among other things. Among those other things is a stipulation that allows hedge funds and private equity firms to advertisesomething they have not been permitted to do since the Depression.
Does that mean the pages of the Wall Street Journal and billboards along the highways of Greenwich and San Francisco will suddenly be filled with hedge fund adverts? Not likely, says one prime broker, who spoke to Global Custodian today on condition of anonymity.
While lifting the advertising ban is a positive move for hedge funds, it is unlikely there will be a noticeable influx of hedge fund advertisements because the typical clients of hedge fundsinstitutional investors, mostlyare not the type to be swayed by newspaper ads or golf tournament sponsorships or commercials on TV, he said.
But having the option to do so is a major benefit, said the prime broker, who said he had discussed the matter with a number of hedge fund clients. Hedge funds are often called secretive and highly leveraged, but that is because, for the past 80 years or so, they were not freely permitted to speak outas if they had no First Amendment rights, he said.
The ban on advertising dates back to the Securities Act of 1933, but in recent years the law has been more difficult to enforce due to the amount of information about hedge funds that is readily available on the Web, experts say.
Hedge funds historically were banned from advertising their private offerings to the general public in exchange for being exempt from registering with the SEC, says the Hedge Fund Association (HFA), which praised the development in a statement today. Now that Dodd-Frank stipulates that advisers to private funds, including hedge funds, with assets of more than $150 million must register with the SECthe deadline for which passed last weekthe ban on advertising essentially becomes a moot point.
Now that many hedge fund managers are required to register with the SEC, the strongest reason for the ban on hedge fund advertising has been removed, says Mitch Ackles, president of HFA. Second, information about hedge funds is ubiquitous because of the Internet, Web sites and the media.
It is believed hedge funds may begin advertising as soon as the SEC adopts its final rules on the matter, which is expected to occur within the next 90 days, HFA says. There will remain some restrictions, however, including that funds may sell their securities only to individuals with a minimum $1 million net worth and qualified institutional investors, the association says.
Managers can breathe easier knowing they can speak more freely, says Ron Geffner, vice president of the HFA and partner at law firm Sadis & Goldberg.
Christopher Gohlke