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August 13, 2014  

Much Confusion Surrounds JOBS Act Filings

Lighthouse Investment, Lone Pine Capital and Platinum Partners are among the firms that have told the SEC they plan to market hedge funds to the public under provisions of the JOBS Act.

Only they didn’t mean to.

Since the JOBS Act took effect in September 2013, managers overseeing 187 funds have filed Form Ds with the SEC declaring their intention to advertise their offerings, according to a Hedge Fund Alert analysis. But the managers of 51 of those vehicles subsequently realized they had filed the forms in error and don’t plan to market to the public. And the Form Ds for at least another eight funds appear to mistakenly make JOBS Act claims.

Lighthouse, for example, filed Form Ds for 24 multi-manager vehicles in which it checked a box marked Rule 506(c), indicating its intent to advertise. But after being contacted by Hedge Fund Alert, the Palm Beach Gardens, Fla., firm immediately filed amended forms correcting the errors. Platinum acknowledged a similar mistake with two of its Form D filings, but had yet to correct the errors as of Aug. 8.

Lone Pine, which started the year with $27 billion under management, declared its intention to market a fund of funds called Lone Juniper under Rule 506(c). But a spokeswoman for the Greenwich, Conn., firm said it won’t advertise any of its funds.

CAIS, which runs a series of feeder funds, apparently made errors in Form D filings for six conduits offering access to such blue-chip managers as D.E. Shaw, GoldenTree Asset Management, Och-Ziff Capital and Two Sigma Investments. “None of the CAIS private funds engage in general solicitation under Rule 506(c) . . . and at this time we do not have intentions of utilizing that exemption at all going forward,” a CAIS spokesman said.

Other managers, including Graham Capital, One William Street Capital and Silver Creek Capital, discovered the errors on their own and subsequently filed amended forms. Silver Creek initially claimed JOBS Act status for a vehicle called Silver Creek Credit Opportunities 4 Fund A. “That was an error in our filing,” said senior counsel Marissa Costales. “Our law firm checked the wrong box and we filed an amendment. We don’t plan on [publicly] marketing at all.”

Even J.P. Morgan filed an erroneous Form D for a vehicle called J.P. Morgan Global Access Portfolio, which launched with $32 million from 70 investors. On Aug. 8, the bank amended the filing, removing the check mark from the Rule 506(c) box. A bank spokesman declined to comment.

Stripping out the erroneous filings, it appears that at most 100 managers offering a total of about 125 funds do in fact intend to market their offerings under the JOBS Act — representing a tiny piece of the overall industry. Hedge Fund Alert’s Manager Database, for example, encompasses 8,722 hedge funds managed by 2,210 SEC-registered investment advisors.

Steven Nadel, a hedge fund lawyer at Seward & Kissel, was struck by the high error rate in the Form D filings. “I don’t think the form is that hard to figure out,” he said. “Some forms are more interpretive in nature — I think this is pretty clear. The form is online. It might have to do with how people are populating the fields on the site.”

The SEC requires private-fund operators to file Form Ds within 15 days of an “initial sale” and to update the forms annually. When the JOBS Act took effect last year, the SEC added the Rule 506(c) check-off box to the form, giving managers the option of publicly advertising their vehicles. Later this year, the securities regulator is expected to introduce more rules specifying the obligations of private funds under the JOBS Act.

For now, only a handful of managers have actually begun publicizing their performance. They include Fairholme Capital, which has a $258 million deep-value hedge fund managed by Bruce Berkowitz, and Lemelson Capital, whose Amvona Fund had $28 million of gross assets as of April. Both funds have generated strong returns. Fairholme’s fund, which launched in January 2013, was up 46.8% in its first 18 months, while Lemelson reports a 56.9% compounded annual return for Amvona.

CORRECTION (8/14/14): This article has been corrected. The original version misstated the performance of Lemelson Capital’s Amvona Fund. It had a 56.9% compounded annual return, not average annual return.