While there probably won't be billboards with alternative investment executives beaming down on expressways as a consequence of SEC marketing rule proposals, firms could be free to discuss new funds while they are being raised.
A little-discussed part of the new proposals, aimed at implementing the mandates of the Jumpstart Our Business Startups Act signed by President Barack Obama on April 5, would end previous rules from the Securities and Exchange Commission that barred issuers of private offerings — which includes all managers with private placement investment funds — from discussing funds or performance while in fundraising mode, attorneys say.
The JOBS Act eliminated the prohibition against solicitation and general advertising in offerings of private placement securities, including private funds. On Aug. 29, the SEC proposed amendments to the rules to implement that portion of the JOBS Act. The rules, which among other things loosen marketing restrictions, are out for comment.
The comment period for all of the new rules stemming from the JOBS Act, including marketing and initial public offerings, will end Oct. 5.
If the SEC rules are enacted as proposed, alternatives managers no longer will live in fear that a stray comment at a conference or a mention by an investor would cause the Securities and Exchange Commission to halt fundraising.
As long as alternative investment managers have taken the steps to otherwise comply with requirements and have a reasonable belief that all of the investors who come into the fund are accredited investors, they can conduct a general solicitation under the proposed rules, said Jason Ment, partner, general counsel and chief compliance officer in the New York office of private equity consulting and investment management firm StepStone LLC.
This will open up a large number of opportunities for managers. Not only can they talk about funds they are raising, but they can ask for investments in their new funds on their websites and distribute materials about their new funds at conferences.
Managers can “have a message on their website that in effect says, "If you are interested in investing in our fund, please give us a ring,'” Mr. Ment added.
And, of particular interest to the financial media, managers can confirm to reporters that they are fundraising and the amount they raised in the fund's first close, Mr. Ment said.
“Under the existing safe-harbor rules, a fund cannot have a general solicitation. Confirming a market rumor, talking about fundraising and talking to a potential investor you didn't already know and had not cleared as a qualified purchaser, could be considered a general solicitation,” Mr. Ment said. “If a manager blew their private placement, they would have to have a cooling-off period, which is crippling to the momentum of fundraising.” No specific length for the cooling-off period was specified in the old rules.