by Kyle Colona on July 3, 2012
Tucked away in the recently passed JOBS Act is a provision that will allow hedge funds to advertise to the general public.
Until now hedge funds were not permitted to solicit or advertise to the general public as these investments were designed for more sophisticated institutional investors. In return a broad variety of funds were made exempt from SEC registration requirements.
The pending regulatory changes connected to the Dodd Frank reform measure combined with the JOBS Act provisions will bring sweeping changes to the hedge fund sector. But the question remains whether investors on Main Street are prepared.
The JOBS Act is designed to help small businesses attract capital and the hedge fund industry made a push to advertise to the general public. This was partially a play to recoup losses stemming from declining revenues in the long wake of the financial tsunami.
While hedge funds still won’t be for appropriate for John and Jane Q. Public (or Joe the Plumber) they will still be a “haven only for ‘accredited investors’ — currently defined as people who can prove they make more than $200,000 or have at least $1 million in investible assets,” according to Market Watch.
As the SEC grapples to implement provisions of the JOBS Act, the hedge fund industry will benefit from advertising: funds with “deeper pockets” can access TV and radio while smaller players can utilize print ads, internet banner advertising and pay-per-click campaigns. While proponents contend that advertising would increase transparency, others believe that ordinary investors are not financially sophisticated to understand these ads.
In any event, hedge funds still won’t be appropriate for the general public. But hedge funds will inevitably become more accessible and therein lies the rub as they say: consumers who are interested in using hedge funds may be enticed by slick sales pitches, especially from funds with unproven track records and the greatest need to attract new cash.
In the end, the same rules will apply to anyone purchasing others, services or products: Caveat Emptor. Let the buyer beware.
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Kyle Colona is a New York-based freelance writer and a Feature Writer forCompliancEX> and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications. You can find him on linkedin.