Anthony Scaramucci, founder and managing partner of the $6.5 billion fund of hedge fund firm SkyBridge Capital, lauded the tenet of the U.S. JOBS Act that will allow hedge funds to advertise for the first time in more than 80 years. Scaramucci spoke at a conference hosted in New York City last week by law firm Thompson Hine.
SkyBridge, known among other things for putting on the leading alternatives conference SALT, which has hosted speakers such as Bill Clinton, George W. Bush, Mitt Romney, Gordon Brown and others, already has its advertisements ready to go, Scaramucci said. The final nuances of the rule are being ironed out by the Securities and Exchange Commission (SEC).
Scaramucci noted that hedge funds generally do not make the news until one of three things happens: someone loses a billion dollars, someone gains a billion dollars or someone steals a billion dollars, which gives the industry somewhat of a negative reputation on Main Street.
Industry participants have said the ban on solicitation has caused hedge funds to remain relatively mum in the media out of fear of sanctions by regulators. Richard Heller, partner at Thompson Hine, said at the event that he advises hedge fund clients not to speak to the press for this reason. (Heller was featured on GCTV earlier this year talking about the JOBS Act and other regulations impacting hedge funds). Lifting the soliciation ban ostensibly would allow hedge funds to defend themselves and raise awareness of the hedge fund industry to the general public, hedge funds have said.
Were going to take control of this, Scaramucci said. People in our industry that are forward thinking are going to use the advertising messaging to tell the truth.
The JOBS Act could be perceived as a double-edged sword for hedge funds. Lifting the ban on advertising is a trade-off for requiring investment advisers to private funds, such as hedge funds and private equity funds, to register with and report to regulators such as the SEC and the Commodity Futures Trading Commission (CFTC).
Scaramucci quipped that SkyBridge has hired the advertising agency that created the Aflac Duck, referring to the ubiquitous mascot of the American supplemental insurance company Aflac (YouTube).
If you work in the industry, youre going to be super happy about the JOBS Act, Scaramucci said.
He was less enthusiastic about other regulations in the U.S., particularly Dodd-Frank, about which he said even the sponsors of the act do not know what all the regulation encompasses. He also chided the concept of too big to fail, a designation for certain institutions that promises government support in the face of failure of a major financial institution; TBTF, as it has become known, is unpopular on Wall Street as it requires more stringent capital requirements of its designees, among other things.
I believe in sensible regulation, but what I dont believe in is over-burdensome regulation from people that do not understand the industry and are pushing for things that dont make sense, Scaramucci said.
When the final nuances of the JOBS Act with regard to lifting the solicitation ban are ironed out by regulators, hedge funds will need to remain cautious about the way they market themselves. The act stipulates that hedge funds still must target only so-called accredited investors, or more sophisticated investors who must have a certain minimum value of investments already.
Meanwhile, service providers to the hedge fund industry appear in agreement that lifting the solicitation ban would have the greatest impact on the largest hedge funds the ones that may pay to put their branding on sports stadiums and the like rather than smaller, emerging funds. Instead, it is likely the latter will make greater use of outlets such as social media and providing more public information about their funds on their Web sites, according to Kira Bazile of the prime brokerage division at global equity trading firm BTIG, which she said targets emerging managers as clients.
Advertising is expensive, said Vincent Sarullo, managing director of Apex Fund Services in the U.S. [Emerging] managers are [more] concerned with other laws out there, such as Form PF, he said. Allocating dollars for advertising right now isnt very high on their priority list.
No matter the scope of the impact of lifting the solicitation ban, raising public awareness of the industry can only be a good thing, said Jay Levy, partner in the financial services practice at law firm J.H. Cohn.
“The more exposure you have, its only going to be positive,” Levy said. “People only hear about [hedge funds] when things go bad.”
Christopher Gohlke