President Barack Obama??s signing of the JOBS Act may have given the hedge fund industry a boost for the future, because embedded in the legislation are provisions lifting the rule - dating back to the 1930's - that bans hedge funds from soliciting or advertising to the general public.The Securities and Exchange Commission has 90 days from the signing of the act, or until July 5 to adopt final rules revising the solicitation rule.
That could possibly mean giving a green light to online, print and TV advertisements from hedge funds.
Hedge fund industry veteran Don Steinbrugge weighs in on the matter in a recent paper he wrote about the impact of the bill on hedge funds.
??The hedge fund industry will benefit from this new legislation as the SEC provides greater clarity regarding how information can be provided to the public and what type of information hedge fund managers are allowed to disseminate,? says Steinbrugge, founder of third-party hedge fund marketing firm Agecroft Partners.
However, Steinbrugge warns that giving funds an opening to publicize themselves to a wider audience beyond the usual crowd of high-end, ultra-wealthy investors can lead to unsophisticated investors being targeted by shady operators in the industry.
??If these investors end up having an experience significantly below their expectations, it could create negative publicity for the hedge fund industry,? Steinbrugge says.
Jonathan Saxton, director of consulting and regulatory compliance at financial advisory firm Kinetic Partners, thinks that the wholesale elimination of ban may not happen as many assume when the July 5 deadline arrives.
??Since the SEC has 90 days to propose a counter to the current layout of the JOBS Act, I have my doubts that it will remain entirely the same as we currently see it,? says Saxton.
Amy Rigdon, a lawyer at the law firm of Holland & Knight, has advised her clients not to do anything until the SEC issues its recommendations for revising the rules for restricting solicitation. But she said whatever the changes; it could only be a plus for hedge funds seeking to shed the yoke of past regulations.
??What this does is give hedge fund managers a little bit of breathing room,? Rigdon says. ??They can go to conferences and talk about their funds without feeling like they have broken any rules ... they can sleep a little bit better at night.?
However, Rigdon cautions that fund operators should not completely relax as there are other federal and state laws that they have to abide when deciding to increase the public profile of their funds.
George Schultze, founder of hedge fund firm Schultze Asset Management, says he knows of some in the industry who are opposed to changes in the rules.
??It??s going to make their lives more expensive,? Schultze says. ??More expensive to develop a good marketing plan and you need to market to compete with the other firms.?
But Schultze, whose firm plans to hire a PR firm in the near future, thinks the loosening of the restrictions will eventually be a boon for the hedge fund industry.
??We should see more institutional investment growth,? Schultze says. ??And one thing with more mainstream advertising - we get more institutional pensions and endowments.?
