Contrary to popular belief, hedge funds are hurting. Interest in funds is at a low not seen in years, while most funds are failing to deliver the returns that the Dow or the S&P 500 index are enjoying as they continue to close at all-time highs.
Hedge funds to return to advertising
After 80 years, hedge funds will be allowed to return to advertising their products as part of the 2012 Jumpstart Our Business Startups Act, which was passed by Congress with bipartisan support, designed to ease regulatory burdens to spur capital-raising and job growth.
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As regulators, the SEC is expected to regulate and have ear-marked a few men and women to scour over the marketing campaigns of numerous funds, which are expected to jump into the advertising arena next week when the ban is lifted on Monday.
“The staff will be closely monitoring and collecting data on this new market to see how it in fact operates … and accessing whether and to what extent changes in the private offerings market may lead to additional fraud or not,” SEC Chair Mary Jo White told an advisory panel of experts convened at SEC headquarters today.
Concerns that fly-by-night funds may defraud investors
While there is certainly a legitimate concern that fly-by-night funds will use the lifting of the ban to defraud investors, it’s hard to see the SEC sleeping through this.
Investor advocacy groups had urged the SEC to incorporate a variety of investor protections into the rule before lifting the ban, something chairwoman White felt was unnecessary.
White offered an arena for public comment
However, in a simultaneous counter-proposal, White offered an arena for public comment that is designed to collect more data on private stock offerings to help police possible wrongdoing and study how advertising is impacting the marketplace.
The cornerstone of this counter-proposal would require firms to file disclosures about an offering prior to advertising it.
The SEC’s proposed rule lacks essential information
Presently, such filings, known as Form D, are only required by the SEC to be filed 15 days after the securities are sold. While that may be great for hedge funds, it ties the hands of regulators. 15 days is a lot of time to get ahead of those policing hedge funds’ ads.
“Advocacy is concerned that the SEC’s proposed rule … lack(s) essential information needed to properly inform the agency’s decision making,” the SBA’s Office of Advocacy wrote in response to White’s lifting of the ban.