Few Firms Utilizing JOBS Act, Filings Show
Fresh regulatory filings by more than 200 private-fund operators indicate that very few plan to market to the public under provisions of the JOBS Act — at least for the time being.
The law, which lifts an 80-year-old advertising ban for private funds, went into effect Sept. 23. In the weeks before and since, there’s been much debate about whether hedge fund firms and other alternative-investment managers would rush to take out ads in print, broadcast and online media. To gauge their activity, Hedge Fund Alert examined SEC Form D filings that fund operators have submitted since the law took effect. A recent amendment to the form requires managers to declare whether they intend to exercise their rights under the JOBS Act.
Of the 209 firms that filed Form Ds from Sept. 23 to Oct. 1, only 12 made such a declaration — most of them nascent operations that have raised little capital so far. New York-based Ogee Group, which launched a hedge fund in April with just $1 million, plans to take full advantage of the JOBS Act. Almost all of the firm’s marketing will be done via the internet — including an initial e-mail blast to as many as 10,000 recipients.
“We are a very small startup, we are collecting e-mail addresses, we will do some web-searching optimization and we may do Google ads,” said founder Sebastien Bossu. “I am very enthusiastic about the change — we fall right in the target of the JOBS Act, which was intended to help startups attract capital.”
But managers like Ogee clearly are the exception. Many established fund operators have filed Form Ds since Sept. 23 indicating they have no intention of advertising those vehicles. The list includes AllianceBernstein, AQR Capital, Bayview Capital, Blackstone, Carlyle Group, Chilton Investment, Fortress Investment, Lansdowne Partners, Marathon Asset Management and Two Sigma Investments. The filings suggest that the industry, which pushed hard for the JOBS Act, doesn’t like the way it’s currently being applied.
Blue-chip firms may abstain from advertising because they don’t have any need to do so. But there are other considerations as well. Under proposed SEC rules, managers of JOBS Act-compliant funds would have to include lengthy legal disclaimers in their advertisements, file proofs of the ads with the SEC and submit to new anti-fraud measures. Violation of any of those rules would bar them from offering a private fund for a full year.
“The [JOBS Act provisions] provide a long-awaited opportunity for increased transparency and a better understanding of our industry,” said Steve Hinkson of the Managed Funds Association, a hedge fund trade group. “But there is still a great deal of legal uncertainty related to the rules that may be preventing many managers from acting.”
An even bigger obstacle is the fact that the CFTC is at odds with the SEC over the JOBS Act. The futures regulator continues to prohibit registered vehicles — including a large swath of the hedge fund industry — from being marketed to the public. The ban even applies to numerous funds that have side-stepped CFTC registration under a so-called de minimis exemption for firms that trade minimal amounts of futures.
Despite entreaties from the Managed Funds Association and others in the industry, the futures commission has yet to “harmonize” its rules with the SEC’s. “Part of it may be that the CFTC is flexing their muscle and showing their ability to independently regulate the markets,” said George Mazin, a partner at law firm Dechert. “But generally the regulators are hostile to the JOBS Act . . . The CFTC has indicated that it is not a regulatory priority, and since they are not mandated to act by the JOBS Act, they are assessing the impact a change would have on their investor-protection concerns.”