The US JOBS Act: What will change and what won’t
When the Jumpstart Our Business Startups or JOBS Act passed this spring requiring American regulators to relax restrictions on hedge fund advertising, the reaction from the marketing community was nearly instantaneous. A thousand white papers proclaimed that this would change ‘everything’ in how hedge funds marketed themselves. Predictions of Times Square billboards and hedge fund branded sports stadiums swirled around the Internet. But as the changes come closer to implementation (the new rules should be finalized by the end of this year or in early 2013), the alternative asset management industry needs a reality check.
Here are three things that probably aren’t going to change in the JOBS Act Era:
1. Small and medium sized funds will not advertise in mainstream publications
Most hedge funds will not advertise in the New York Times whether it’s legal or not. Here’s some quick math: a hedge fund with $500 million in assets under management making four percent returns a year and a standard 2-20 performance model makes $14 million a year. A full page advertisement in the Wall Street Journal costs more than $320,000. Hedge funds may own sizeable stakes in General Motors, but they don’t necessarily have its advertising budget.
2. Consumer money isn’t all that great
With a couple of notable exceptions, such as Anthony Scaramucci’s SkyBridge Capital, hedge funds have been increasingly gravitating towards institutional investors. Funds have shown a clear preference for money from pension funds and endowments that are more likely to have aligned investment goals, large allocations of capital and a willingness to commit long-term. Middle- and high-income investors are none of these. It won’t make sense for the average hedge fund to target these investors, the majority of whom would struggle to make the minimum investment threshold for one hedge fund.
3. Performance disclosure won’t be seriously impacted
While many a manager may wish they could send out a press release every time they gain double digit numbers in a month, advertising performance to the general public has previously been illegal. The JOBS Act may (it’s not yet clear) ease these restrictions. But even if they do, it won’t matter as performance figures are already widely available. The press gets access to performance from large funds through investors, while small funds have long been able to return performance to a database and tell reporters to cite those numbers. It will be almost the same under the new system. Even if alternative funds become the equivalent of their traditional asset peers, hedge funds still won’t be able to make forward looking statements about performance, and it is doubtful that compliance will allow performance to be the centerpiece of any advertising campaigns.
In conclusion, some things will change. Large, multi-billion dollar operations will launch national advertising campaigns and place expensive newspaper advertisements. Potential investors will be able to access more information and won’t have to use password-protected portals. The gray area around reporting will be removed. Shifts will happen, just not the earth-shattering ones some predicted.
- Financial Communications, Financial Services, JOBS Act, PR, Public Relations, Regulation, US Elections,