Regulatory Update – JOBS Act Eases Advertising Restrictions for Private Funds Relying on Regulation D
On April 5, 2012, President Obama signed into law The Jumpstart Our Business Startups (JOBS) Act, which offers hedge funds and other private fund vehicles the opportunity to significantly broaden the scope of their marketing and capital raising efforts. Pending formal SEC rulemaking, the Act would potentially lift the prohibition on general solicitation and advertising, giving funds greater opportunity to communicate with potential investors, as long as eventual purchasers are accredited investors. Accredited investors will no longer need to be previously known to the fund, a requirement that limited the number of available prospects to a fund.
Although the deadline by which the SEC must finalize rulemaking for this section of the JOBS Act is not until early July, private funds relying on Regulation D are advised to take the interim period to consider the possible impact of these changes on their business and to review existing marketing materials. Whereas a fund’s capital raising success has been largely dependent on existing relationships and its ability to reach new prospects via limited resources, such as hedge fund databases, conferences and networking events, the Act will significantly open up the field, allowing all funds to market to all accredited investors. Funds will need to become much savvier about developing sophisticated marketing efforts that will help them achieve the necessary competitive advantage to succeed in raising capital.
