Starting today, hedge funds and other private offerings will be able to advertise for the first time in 80 years. But don't expect clients to see ads while watching their favorite sports teams or Modern Family.
“The general gist is [hedge funds] have no appetite for mass advertising or marketing of any kind as they feel their institutional clients will not be at ease,” according to one marketing executive specializing in the financial services industry.
In early July, the SEC adopted section 201(a) of JOBS Act, overturning the rules banning general solicitation on private offerings. And while that means companies are now allowed to use advertising to raise unlimited amounts of capital, the accredited investor stipulation remains in place.
Under rule 506/Regulation D, only investors with over $1 million in investable assets or $200,000 in annual income for the previous two years ($300,000 for joint income) are considered "sophisticated" and eligible for accreditation.
To verify that investors meet the requirements, private placement issuers have two options under the new rule. They can either review federal-tax documents to check an investor’s income or have a registered broker, investment adviser, licensed attorney or CPA confirm clients’ income and overall net worth.
Because of this benchmark, the lack of enthusiasm for mass advertising is widespread. “Personally we haven't had any uptick of interest since the lifting of the ban,” the advertising executive added.
Inland Private Capital Corp., which provides private placement offerings, said Tuesday that while it welcomes the rule changes, it was going to continue working with qualified third parties, instead of pushing mass marketing. "Inland remains committed to working solely through our valued network of broker-dealers and financial advisors to offer suitable investment programs to their clients," says CEO Keith Lampi. Sometimes the old ways of doing things—in this case, marketing through established networks—work best to ensure that investors understand the products they are investing in.
Much of the hype surrounding the rolled out JOBS Act provision is around old outdated marketing methodologies, such as outdoor advertising, TV, and Radio, says Lani Nguyen of the full-service marketing agency The Longtails.
Instead, most of Longtail’s clients are much more interested in highly targeted and measurable marketing strategies and tactics, Nguyen says. “There will be larger funds (Blackstone, KKR, etc.) who might pay for an ad in the SuperBowl. But for the majority, we believe it will be highly targeted advertising utilizing valuable content.”
“We're especially excited because we believe that this [new rule] will democratize the space, meaning that smaller, more nimble funds can creatively compete with larger more established ones,” she says.
Updated on Sept. 24 to include remarks from Inland Captial