A clause in the Jobs Bill that is expected to be made into law in April will offer greater freedom to hedge funds and investment banks in their ability to advertise their services to the general public. The new freedoms could allow a whole host of marketing schemes to be used by funds which might allow them to become more popular among the general public. Such a move is interesting but not unexpected in the Jobs Act which rolls back many regulations on the financial services industry. The ban dates back to the Securities Act of 1933 and so this would be the first time in US history that funds could actually advertise. We speculate as to a couple of the effects this could have in the coming years.
If ordinary people were allowed to invest in hedge funds and were able to, at the moment one of the main obstacles to that is the inability of funds to attract a large number of investors. If such moves were made the mystification and demonization of hedge funds among the general public. This would be welcomed by many in the financial services sector. Since the 2008 crisis there has been a huge amount of straw man trials of people in the industry, as well as a few actual trials, these have colored perception among the public and come around to put greater political pressure on funds and interference by both regulators and government. The ability for ordinary people to be involved and have some understanding of what a hedge fund is could have an effect on dulling the fighting instinct and making the growth in the financial sector a much less maligned part of the economy.
Currently hedge funds are not allowed to legally market their products to the general public. This law could change that and could open new realms of business in the hedge fund sector. If the investment funds are able to attract a larger audience they could begin to accept smaller amounts of money and the value of their funds would still surely rise. If hedge funds that attract the general public become bigger and stay successful it will attract more and more funds to the same type of business. In this speculation funds aimed at lower initial investors would be more profitable and more attractive to the best managers. Certainly an interesting prospect.
In what ways would the funds employ their new found marketing abilities? Starting off it would probably look very high end, Tag Heuer rather than Coca Cola, and be aimed at high finance customers. But if this does have the effect of popularizing this type of investment that would have to change. We’ve already seen banks and insurance company’s once safe havens of more conservative advertisement, buckle in favor of quirky and funny ads. Could we be enteering a world of talking animals and sea captains? Hedge fund ads with Cameos from old TV shows and animated characters sound fun but who in the industry is actually ready for that particular change?