The Securities and Exchange Commission’s decision to lift the general solicitation ban under Regulation D – as mandated by the JOBS Act signed into law last year – is either a game changer or no big deal at all. The answer depends on who you ask. Even in our own newsroom, colleagues focused on various alternative asset classes have passionately debated what impact the reforms may or may not have on fundraising and other matters.
Within the private investment industry, there’s a camp that believes the reforms will usher in a new era of alternative asset managers regularly using the internet and other media – perhaps even taking out TV ads – to bolster brands and generate more interest from accredited investors. Even if it’s not to market specific fundraisings, but to generally raise a firm’s or the industry’s profile, that can only be beneficial in the long term, they argue.
So, too, is the fact that alternative investment professionals will now be able to speak more freely in public, with the press and in front of peers at conferences and industry events. While they will still have to meet various SEC requirements – such as refraining from making claims about future returns they are unable to substantiate – they no longer have to worry about whether the SEC will consider their comments to be ‘marketing’ and halt a fundraise in progress.
But when it comes down to it, the opposing camp argues, none of that is actually going to shift the status quo. In terms of general advertising to increase awareness and attract more investors, many in this group believe that while some hedge fund advisors may begin placing ads meant for wider consumption (and to poach some mutual fund industry clients), the bulk of the private equity industry will remain resolutely relationship-based, targeting accredited investors by way of personal, tailored outreach. In other words, don’t expect to see billboards replace placement agents anytime soon.
Likewise, this group doesn’t expect previously tight-lipped GPs to suddenly start giving out firm or fund information to journalists. Rather, they anticipate the majority of private equity firms will not tick the general solicitation box when filing their Form D, meaning they will be just as careful with their words as they’ve always been.
Many anticipate the majority of GPs will not tick the general solicitation box when filing their Form D, meaning they will be just as careful with their words as they’ve always been
On compliance, the ‘nay-sayers’ also believe there’s more risk for those who go down the general solicitation route. They point out that any advertisement is still subject to antifraud rules, and without best practices or precedent to rely upon, it can be perilous for a fund manager to be first out the gates. Some also dislike the SEC’s temporary requirement for all GPs using general solicitation to submit their marketing materials to the SEC for monitoring purposes – a level of regulatory attention some firms simply are not comfortable with.
Informal polling at two PEI conferences suggests many industry professionals planned to shrug off the demise of the marketing ban – but at the same time weren’t completely closed to trying to benefit from it, either. At last year’s Private Equity International Investor Relations Forum, 45 percent of delegates said they had no interest in advertising their next fund in a newspaper or trade publication; 37 percent said they would at least consider it, while the remaining 16 percent said they were either quite likely to use general solicitation or definitely would. In comparison, at PEI’s Private Fund Compliance Forum earlier this year, a large majority (60 percent) of the 100-some delegates in attendance said they had no interest in general solicitation, though one-third said they may advertise more openly in smaller institutional circles.
Like those audiences, PEM’s own view is nuanced: lifting the marketing ban probably isn’t going to be transformational for private equity capital formation – at least not in the short-term. But as a (small) segment of the industry begins to test the waters with general marketing, adverts and raised media profiles, it could set precedents and spur others to follow suit. Just how probable that is – and how soon it’s likely to actually happen – depends on who you ask.