Online advertising agencies could be about to market hedge funds if a rule proposed by the Securities and Exchange Commission (SEC) receives public endorsement.
As widely forecast, SEC Commissioners have voted to seek public consultation on removing nearly 90 years of restrictions on hedge fund investment.
General solicitation repealed
Back in April, when President Obama signed the Jumpstart Our Business Startups Act (JOBS) into law, a ban on “general solicitation” for investment was repealed. This prohibition, which came into effect in 1933 via the Securities Act, was originally designed to protect retail investors from undue risk. Effectively, it rendered the business of finding investors for private funds and startups a decidedly opaque affair, with money-raising confined to a select band of “accredited investors.” In practice, this meant individuals and institutions meeting extraordinarily high asset and income thresholds.
Commenting on the SEC’s vote, its Chairman Mary Shapiro said, “I recognize that there are very real concerns about the potential impact of lifting the ban on general solicitation. While I believe it will be incredibly important for the commission to take a thorough look at the private placement market in the future, I think at this point it is appropriate that we undertake this more narrow mandate that Congress placed upon us.”
Even before the vote, the Wall Street Journal was reporting signs that hedge fund managers were approaching advertising agencies in anticipation of gaining access to a wider pool of potential investors. One chief executive of a New York marketing firm specializing in financial clients, Stacy Haefele, said that, in recent weeks, she’d taken several calls from small funds inquiring about advertising strategies and costs. They’re “starting to do their homework”, she believes. For the first time, it seems, the funds are considering hiring the services of an art director and a copywriter to attract investors rather than relying on a narrow field of established players.
One advertising expert, Rob Reilly (chief creative officer at Crispin, Porter & Bogusky) said that hedge funds must become more transparent. “They need to be honest and show how the money is made and how their process works.”
No changes will be finalized until after the public consultation and a second vote, which is expected at some point this Fall.