This content is from: Portfolio

The Morning Brief: Say Hello to Hedge Fund Ads

It’s official: Hedge funds can now advertise. On Wednesday, the SEC adopted revisions to Rule 506 of Regulation D, allowing hedge funds and other private placements to advertise, as mandated by the Jumpstart Our Business Startups Act. The regulator also prohibits so-called bad actors — felons and other individuals with certain previous securities law violations — from participating in certain securities offerings as required by the Dodd-Frank Act.

“As we fulfill our mission to facilitate capital formation and maintain fair and efficient markets, the Commission must always focus on strong investor protections,” said Mary Jo White, chairman of the SEC. “We want this new market and the private markets in general to thrive in a safe and efficient manner, and these rules we adopt and propose are designed to facilitate that objective.”

Many securities attorneys and other hedge fund officials applauded the long awaited move. “In this era of mass communication, the notion of continuing to restrict advertising or general solicitation makes no sense,” says Wesley Nissen, chairman of law firm DLA Piper’s financial services group in Chicago, in an e-mailed statement. “Private investment funds will continue to have the ability to protect investors by limiting access to those who are accredited. So the lifting of the ban on advertising as part of the changes under Regulation D is long overdue.”

However, not everyone is happy. A. Heath Abshure, president of the North American Securities Administrators Association and Arkansas Securities Commissioner, said in a statement that state securities regulators are disappointed with the SEC’s move, asserting that “lifting of the ban on general solicitation and advertising of highly speculative and sometimes fraudulent private placement offerings investments before approving safeguards needlessly puts investors in harm’s way. The decision to lift the ban without simultaneous adoption of appropriate limits, guidance and investor protections for the most common product leading to enforcement actions by state securities regulators underscores the prospect that investors and issuers alike will be exposed to an indeterminate gap in protection.”

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A new report from London-based research firm Preqin found that the number of Ucits hedge funds has grown by 260 percent since 2008. Most (86 percent) of the institutional investors in Ucits-compliant hedge funds — which are regulated, transparent and liquid — are European institutional investors. North America and Asia-Pacific account for 8 percent and 5 percent of UCITS investors respectively.

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Dyal Capital Partners has taken a minority stake in Waterfall Asset Management from M.D. Sass-Macquarie Financial Strategies. Waterfall is a New York-based diversified alternative investment firm with roughly $2.3 billion of assets under management. Waterfall is the eighth deal for Dyal, a private equity fund managed by Neuberger Berman Group that is trying to acquire minority equity interests in institutional hedge fund companies worldwide. More than half of the capital has been committed by the fund, which closed at $1.28 billion. Waterfall will continue to be led by its co-founders, Jack Ross and Tom Capasse, who will retain complete control over the firm’s business operations and investment process, according to the press release.


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The Public Employees Retirement Association of New Mexico, which is an investor in Bill Ackman’s Pershing Square Capital Management, has told the activist hedge fund manager it is not interested in ponying up additional money for his new special investment vehicle. “We were notified of the PS (Pershing Square) special vehicle, but will not be investing as it has a longer lock-up than what we’d like,” Jason Goeller, who oversees hedge fund investments at the billion pension fund, told Reuters. Ackman wants to raise about $1 billion in the SIV with a three-year lockup until September 30, 2016 so he can make an investment in an unnamed stock, rumored to be FedEx Corporation.

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