Right now, hedge funds cannot technically advertise to anyone. They cannot solicit potential investors — they must find a way to cleverly (but legally) inspire accredited investors to come to them, ask questions, and hope they’ll stick around. It’s not an easy business by any means, but with the potential to make billions of dollars a year; enterprising individuals are frequently attracted to the hedge fund industry.
Unfortunately, the JOBS Act has yet to change a thing. While it sounded good on paper (and may one day prove to be beneficial), the Securities and Exchange Commission has yet to detail the final rules that will supposedly allow hedge fund managers to speak openly without the threat of massive fines hanging over their heads.
Part of the problem stems from a lack of internal support. One fund manager (who wished to remain nameless) told StreetID that he has spoken to people within the SEC who are not happy about the JOBS Act. This has caused a delay in formalizing the anticipated list of new rules.
Under the current rule system, hedge fund managers are very reluctant to speak to the press. Most will not. Those who do speak openly are so terrified about the consequences that they attempt to coerce reporters into sending them interview transcripts before the story goes live. The same excuse is provided every time: “I must show it to my lawyers in order to be compliant.”
If a reporter refuses, most fund managers accept it but are likely to decline the interview. There are times, however, when managers ask for the transcript after an interview has been conducted. Most reporters are likely to refuse that request.
In that scenario, what should a fund manager do? Should he threaten the reporter? Yell at him?
In doing so, the fund manager could expose himself to a number of legal issues. If the reporter is recording the interview, he or she could publish the entire discussion online. In that scenario, never mind the compliance issues — his investors might simply run for the hills.
On the other hand, if the manager stays silent and decides to take his chances with regulators, they may come down hard on him for something that was said during the interview.
These are the very reasons why so many hedge fund managers simply will not conduct interviews under any circumstance. Some still take the risk though, and they continually seem to regret it.
This will not change unless the laws — or the “rules” — officially change. Congress can enact as many regulatory-altering acts as it wishes, but without the proper guidelines to go along with them, the results will be the same.
Jesse Marrus is president of Street ID