At first glance, the new SEC guidance on its testimonial rule might not seem all that relevant to private fund advisors, especially those whose clients solely consist of big-time investors.
But on closer inspection, the guidance released at the end of last month could actually revamp the way GPs utilize social media on their websites – thus potentially enhancing their digital connection with investors, job-seekers and the wider public.
In a nutshell, the commission said that GP websites were allowed to link to unfiltered review sites like Angie’s List or Yelp without violating rule 206 of the Advisors Act – which states that fund advisors can’t publish client testimonials that would inevitably highlight the positives and ignore the negatives. Because banks, pension plans and other institutional investors aren’t posting one to five star reviews of their GP relationships, these business review sites don’t contain much of relevance to our readership (trust us, we checked).
But what about other independent social media sites like LinkedIn, Twitter and Facebook? While these sites aren’t necessarily used to provide testimonials or business reviews, the guidance could be interpreted to mean that fund professionals can now include a hyperlink to their LinkedIn profile or Facebook page without worrying quite so much.
Thanks to this guidance, GPs can now feel safe linking to social media pages that may include comments about their golf game, community leadership, retirement planning expertise and other testimonials not related to the provision of advisory services, a SEC spokesperson told PE Manager.
Of course, supplying links to their social media pages is not something many GPs do at the moment. But private equity firms are slowly warming up to the idea that social media can be used as a tool to reach stakeholders, manage their public image and explain their modus operandi to anyone interested in hearing about it.
Research from BackBay Communications found that one in three firms now use social media in one form or another, with the most popular tools being Twitter, Facebook, LinkedIn, YouTube or a company blog. Another 20 percent said their firm currently doesn’t use social media, but they would like to start.
The other significant point is that many firms now regularly use LinkedIn and other sites to attract talent. The new guidance could be taken to mean that GPs can direct job-seeking website visitors to a LinkedIn group plugging the firm's career opportunities, says Thomas Devaney, a New York-based funds and regulatory specialist with law firm Sheppard Mullin.
To be clear: we don’t expect many GPs to start posting a hyperlink to a Facebook account on their bio page anytime soon. The guidance is very new, and these are uncharted waters. For instance, LinkedIn offers a way to 'endorse' other users that is not all that different from a Facebook 'Like' – which the SEC says could be considered testimony under the Advisers Act. And the compliance team will no doubt feel uncomfortable about any online profile that might include posts about fundraising, in amongst their musing about how the ref just totally blew that call.
However, a more realistic possibility in the near-term is that GPs start linking to carefully managed blog posts, around which a particular partner may have built a loyal following. Or – assuming any endorsement feature could be turned off – a link to a networking site where the firm advertises job openings. Whether the guidance eventually leads to a Yelp-like website that rates private fund managers is a question for another day. We'd like that, but we can see why you wouldn't…