On October 9, Pepper partner Gregory J. Nowak was quoted on Ignites.com, a service of the Financial Times, in an article, “Limits Needed on Hedge Fund Ads: ICI,” about a comment letter he submitted on behalf of the Investment Company Institute (ICI) to the Securities and Exchange Commission (SEC) on October 5, urging the SEC to impose limits on the content of hedge fund ads that could soon be permissible under the Jumpstart Our Business Startups (JOBS) Act.
The act mandates that the SEC repeal longstanding private-fund advertising bans, and it proposed a rule to do so on Aug. 29.
In the Ignites.com article, Nowak contends that allowing private funds to advertise will lead to greater disclosure about the products.
“Ultimately it’s a good idea to allow sunshine to flood in. That’s what this rule will do, as long as it’s properly administered,” Nowak said. “Both private equity and hedge funds have gotten a bad rap over the last few years for being ‘secretive,’” he adds, noting that such fund information typically has been available, but on limited-access Web sites.
Nowak’s letter also touched on ICI’s concerns about the existing guidelines for determining whether potential investors can be approved as “accredited.” While he notes that current accreditation standards are just as relevant as past ones, he recommended several “safe harbor” guidelines in determining accreditation, such as a non-financed investment of $1 million, certification from a registered broker-dealer that an investor meets the standards, or being accredited by a family member who is a principal of the issuer.
“I don’t think anyone’s made a compelling case that [the accreditation amount] should go higher .... If someone has $1 million, and they put $1 million in a single investment, is that suitable? I think most managers would ask their clients to think twice,” Nowak said in the article. “We’re trying to avoid a circumstance where the issuer would be subjected to later challenge or would be subject to a rescission,” he added of the safe-harbor recommendations, explaining that they could give private-fund providers more legal protection if investors falsified their qualifications.