The Hedge Fund Association, an international organisation that represents hedge funds, service providers and investors, believes liberalised advertising and solicitations rules contained in the new Jumpstart Our Business Startups (JOBS) Act would help hedge funds raise assets and “encourage emerging managers to continue to enter the industry.”
The HFA also asked the SEC for clearer rules to verify that potential investors are indeed accredited as a way to “add further stability to the industry.”
The HFA’s position was outlined in a comment letter submitted to the Securities and Exchange Commission on 6 June, 2012. The SEC is soliciting comments before implementing regulations, scheduled to be published 5 July, 2012, which are expected to allow hedge fund management companies to communicate directly with potential investors for the first time in their history. Hedge funds would still be restricted to selling their securities to accredited investors such as individuals with a minimum USD1 million net worth and qualified institutional investors.
Richard Heller, chairman of the HFA’s Regulatory and Government Advisory Board and author of the letter on behalf of the HFA, says the JOBS Act provision lifting the advertising ban does not weaken existing anti-fraud provisions forbidding people from using false or misleading statements to induce investors to invest in hedge funds. If anything, he wrote, “providing rules to strengthen a manager's decision to accept a subscriber's investment by following the rules to be drafted by the SEC that will for the first time provide a road map for managers to rely upon will, we believe, add further levels of compliance that the Dodd-Frank Act initiated.”
Hedge funds have been banned from soliciting or advertising their private offerings to the general public in exchange for being exempt from having to register their interests or shares with the SEC under Rule 506 of Regulation D The lack of a clear definition of a solicitation has created confusion about what hedge fund managers can disclose in their marketing materials, at conferences or in the media.
The HFA’s comment letter comes two months after the historic signing of the JOBS Act, which the association praised at the time as being a boon to emerging hedge fund managers. The HFA’s comment letter, says the association’s President, Mitch Ackles, ensures that regulators are able to consider the views of the whole industry, including its service providers, investors and those smaller managers which represent a majority of hedge fund firms.
“In addition to promoting a better understanding of and education about hedge funds, our association’s mission is to give a voice to the concerns of industry participants who may not otherwise have been heard,” says Ackles. “That’s why we include all of our members in developing policy initiatives.”