U.S. JOBS Act will force hedge funds to drop the kimono

The New York Times is publishing a story today on a new bill in the U.S. — expected to be signed into law next month — that’s expected to launch an advertising arms race in the normally secretive hedge fund and private-equity sector.

The Jump-start Our Business Start-ups Act, or the JOBS Act (read the full text of the act here), will reverse provisions within the 1933 Securities Act that prevent hedge funds from discussing things like performance or investment strategies with outsiders.

These provisions have been a double-edged sword for hedge funds in the past — allowing them to keep their investment strategies to themselves, but restricting them from pulling in clients directly, particularly retail clients.

The Times article quotes Jay Gould, a partner at the law firm Pillsbury, who views the act as a natural next step in the sector’s progression towards institutionalization, and all the strict compliance that entails.

And while the amendments do not drop the $1-million threshold for hedge-fund investors, they do raise the risk that less sophisticated investors may be drawn into complex, high-risk investment strategies that they don’t understand.

“If you have a blizzard of advertising, it’s going to be much more difficult for people to do due diligence,” said Philip H. Harris, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom.

Read this fascinating article in its entirety on the New York Times’ Dealbook site. Big changes ahead for private equity south of the border, so stay tuned.

David Dias

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