With passage of the Jumpstart our Business Startups (JOBS) Act in April, the U.S. Securities and Exchange Commission is now poised to loosen long-standing restrictions on Hedge Fund marketing and communications. The move has a number of high-profile opponents and the rules’ promulgation may be delayed by Chairman Mary Schapiro’s departure, but – at least for now – the Commission seems willing to move forward once it gets back to business.
This is a policy shift that could represent the next big gold rush for the $2 trillion industry. As such, issuers need to ensure that they are well-positioned to attract “accredited” investors – high- wealth individuals, institutional investors, private wealth groups, etc. – with messaging and advertising that could, for the first time, look very much like the marketing tactics widely utilized throughout much of the financial services industry.
Most hedge funds are expected to tread lightly at the outset as they await guidance as to precisely what is and what isn’t allowed under the new regulatory framework – so don’t expect an initial flood of ads during golf tournaments or in the pages of Forbes, Fortune, and other high-profile business publications. But that doesn’t mean hedge funds shouldn’t start planning now for a marketing and communications environment that offers unprecedented freedom to define both the industry and the funds that exist within it.
Bottom lines will, of course, play a major role in hedge fund messaging – as issuers highlight long-term performance, manager expertise, equity, hard assets, and a number of other value indicators to both investors and the advisors that guide them.
That said, it shouldn’t be overlooked that hedge funds also have the chance to humanize an industry that has long operated under a shroud of sorts. By leveraging this opportunity, hedge funds can provide themselves a higher degree of familiarity in the investment community, even as they improve general perceptions about the industry by helping the public better understand its role in growing a stronger, more robust, and increasingly fair global economy.
In this context, hedge funds need to articulate how they aim to invest in socially responsible companies wherever and whenever possible. They need to talk about how their investments create jobs and expand economic opportunity for all. And just like their brethren in the consumer banking world, hedge funds need to communicate about their charitable works and how their donations of time, money, and other resources help build stronger communities at home and abroad.
Perhaps most important of all, however, is the need for hedge fund marketing and communications to always remain within the parameters of regulatory compliance – as it won’t take much malfeasance to provide adversarial consumer advocacy groups, competitors, and like-minded policy makers with the ammunition they need to reverse this move and perhaps even impose harsher restrictions than those previously in place.
John Lovallo is a Senior Vice President Chair, Corporate & Reputation Practice at LEVICK and a contributing author to LEVICK Daily.