Though the JOBS Act could offer some benefits to alternative investment managers, the benefits appear to currently be outweighed by a numbers of concerns including enhanced regulatory scrutiny, additional costs of advertising, notes Preqin’s report.
Preqin in its May 2014 report titled ‘Private Equity Spotlight’ also highlights what private equity funds can do to differentiate themselves in a competitive fundraising environment.
How JOBS Act impacts fund managers?
The final requirements under the Jumpstart Our Business Startups Act (JOBS Act) were signed by the SEC in September 2013. Preqin’s survey of fund managers reveal that both private equity managers and hedge fund managers in the U.S. appear sceptical, with 50% of US-based hedge fund managers and 55% of US-based private equity managers feeling that the Act will have no significant impact on the industry. The following graph captures their feedback:
Preqin’s survey also highlights that alternative investment managers have been slow to take advantage of the marketing opportunities presented by the JOBS Act, with just 4% of hedge fund managers and 5% of private equity managers indicating that they have already registered under 506(c) which permits general solicitation. The following graph sets forth fund manager’s plans to market under the JOBS Act:
Despite their slow adoption of marketing opportunities presented by the JOBS Act, the private equity fund managers were split in their opinions on the main barriers to marketing under the Act.
As can be deduced from the above graph, for hedge fund managers, the biggest factor cited was the additional cost, with 42% of respondents mentioning this as the key issue. The private equity managers cite the additional cost of marketing and concerns about conflict with the Alternative Investment Fund Managers Directive (AIFMD) as the greatest obstacles.
How Private Equity funds can differentiate?
In the May 2014 Preqin report, Kevin O’Connor, Director, Markit, points out that despite a backdrop of buoyant industry fundraising levels, the Preqin’s Funds in Market data reveals a third of private equity vehicles failed to reach their fundraising goals in the first quarter of 2014.
In analyzing Preqin survey results from the ‘Investor Outlook: Private Equity, H1 2014’, he points out that there is no surprise that past performance and team stability and experience rank highly among factors that LPs consider when looking for a GP. The following graph captures the key factors that investors assess when looking for a Private Equity Manager:
Kevin O’Connor points out funds will need to work with their service providers in order to create a comprehensive reporting solution, which meets end investor requirements.