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Hedge funds — a new product for the Madison Avenue touch?

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Gen­er­al solic­i­ta­tion repealed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the Jump­start Our Busi­ness Star­tups Act (JOBS) into law, a ban on “gen­er­al solic­i­ta­tion” for invest­ment was repealed.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.”

Ad-ding val­ue

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.

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