SEC lifts fund advertising ban

GPs, hedge fund managers and start-ups had previously been prevented from advertising or using general solicitation when targeting US investors while fundraising. The implementation of Rule 201 of the Jumpstart Our Business Start-ups (Jobs) Act means that GPs are able to advertise their fundraising efforts on television, in print advertisements and on websites in the US, rather than relying solely on private communication and existing relationships.

However, when using general solicitation to raise funds, firms will only be able to accept the resulting proposed commitments from US-based LPs that fall under the term "accredited investors" as defined by Regulation D of the 1933 Securities Act. Under this regulation, accredited investors include a high-net-worth individual whose total assets over total liabilities sit in excess of $1m; an individual whose sole income reaches at least $200,000; and a company or corporation that has not been formed specifically to acquire shares and has total assets of at least $5m.

The removal of the prohibition means that GPs will be able to target previously unattainable, potential US investors for their private funds. Under the previous rule, firms were unable to court interested investors that had not been independently solicited by the GP until rigorous vetting on the interested party had been carried out, or the potential LP had been introduced to the firm through an individual or company that had an existing relationship. Firms were also unable to announce their fundraising efforts to the media or at industry events under the old rule.

Fundraisers will now also have to file a Form D notice with the SEC before beginning general solicitation and once soliciting has ceased. The Form D notice is used when filing a notice of an exempt offering under Rule 506 of Regulation D, which comprises rules regarding the sale of securities without registration under the 1933 Securities Act.

The Jobs Act, which was signed by US president Barack Obama in April last year, set out to implement "reforms and regulatory reductions to help entrepreneurs and small businesses access capital", according to a document on the Whitehouse's website.

As well as allowing GPs to reach a much wider audience when targeting investors for new funds, the 201 rule will simplify the raising of funds from US investors by relaxing the extensive regulations that come with seeking fund investors. Due diligence must still be carried out on potential LPs to assure that they are accredited investors, but firms now stand the chance of receiving a higher quantity of offers from previously unknown or inaccessible, potential LPs.

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• Topics
• Fundraising
• United States