Hedge Fund Ads - More Hype than Substance

On July 10th, 2013 the SEC announced it had lifted the general solicitations ban as required by the JOBS act passed in 2012. The SEC ruling eliminates the prohibition on general solicitation and general advertising in certain types of offerings such Reg D private placements. While this impacts the “how” of marketing to potential investors is does not affect the “who”. Requirements limiting these types of investments to accredited investors remain in place. As a result, the lifting of the ban on advertising by hedge funds and other firms looking to raise financing is unlikely to have a major impact on the industry. Currently the majority of these firms identify potential accredited investors through well developed networks of contacts that allow them to present these opportunities on a highly targeted basis. In general, this approach is very effective and highly efficient in terms of cost and result. The idea that general advertising of investment opportunities will generate new funding connections that would have otherwise failed to materialize is relatively unrealistic. More likely they will attract unsuitable investors and questionable investments, producing little value for those involved in the process. Still lurking on the horizon is the element of the JOBS act that legalizes equity crowdfunding. If this comes to fruition then the lifting of the ban on general solicitation will have a substantial impact on the investment community. However, equity crowdfunding remains such a Pandora’s Box for the SEC that we are unlikely to see this provision enacted anytime soon.

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