Hedge Connection applauds the SEC for adopting the final rules in connection with the Jumpstart Our Business Startups (JOBS) Act, lifting an 80-year-old ban on general solicitation and allowing hedge fund managers to advertise.
We wait in anticipation to see what requirements the SEC will impose on funds regarding their marketing practices. In general we believe that this move will ultimately force hedge funds to become more user friendly and transparent, as competition for capital increases. The largest funds have gotten away with being secretive and avoiding questions while they hide behind their cloak of arrogance and the fear of breaking Regulation D. This is good for the investor.
As funds become more comfortable with promoting their product, investors will be clued into questions they should ask and the discussion should become more of a two way street. In addition, the media will be able to scrutinize funds more openly and hopefully get more cooperation from funds in answering hard questions that they previously could not answer because of potentially being viewed as advertising their fund. The fear that potential scammers will now be able to thrive in this new world is no more real than it was before the JOBS Act was signed into legislation. The risk of fraud will always be an issue for investors to consider. At least now it will be harder for funds to tell investors that they can not answer this question or that question because they risk losing their private placement status. As always, investors need to be vigilant when investing in any private placement. At the end of the day, when investing in a hedge fund or any private placement you most likely have signed a document that says the fund can do whatever it wants with your money, including losing every penny and putting up a gate during a crisis, with little or no ramifications. If this isn’t enough incentive to do strict due diligence, regardless of advertising, then I don’t know what is.
Lisa Vioni is a 23 year veteran of the capital markets and former CEO of Hedge Connection