Hedge Funds Make the Move into Marketing

For decades, hedge funds have been restricted on how they can advertise to new investors. Now, thanks to a small provision included in the new jobs bill, hedge funds are able to advertise and speak more publicly on their strategies and performance.

Under Regulation D of the Securities Act of 1933, funds have been banned from general solicitation, which included:

• No communication on any subject to the media
• No participation in databases
• No contact information on a firm’s website

The JOBS Act, which was signed by President Obama on April 5th, gives the Securities and Exchange Commission 90 days to revise the rules prohibiting advertising and other communications by hedge funds and private equity funds.

Advertising and marketing restrictions for hedge funds and private equity firms have always been unclear, and these new guidelines will establish exactly how funds can solicit customers. Unlike traditional mutual funds, hedge funds and other private investment firms are not required to provide the same kind of disclosures, and therefore were not allowed to advertise and could only work with experience, high-net-worth investors.

The new bill has mixed reactions amongst industry insiders. Those who support the bill believe it will help companies raise money to fund businesses that will create employment opportunities, while skeptics think hedge funds will lure the general public into investments that are too risky for them. However, hedge funds will still not be able to target the masses— investors must be able to prove they make more than $200,000 or have at least $1 million in investible assets (these rules will be revised again in 2014).