Hedge fund manager Jonathan Hoenig wants you to know he's not trying to be elitist. "There's this perception that hedge funds are exclusive, but that perception is born from the regulations," he says. Those regulations include limits around the investors the fund can accept and, until last September, a long-standing ban on hedge fund advertising and other forms of general solicitation.

To prove the point, Hoenig stepped out with a print advertisement for his Chicago-based firm, Capitalistpig, even before a Jumpstart Our Business Startups Act provision made the practice legal. "Like any other business, my goal is gaining customers," says Hoenig, who currently has $21 million under management and claims a 424.2% total return since the fund's inception on Aug. 1, 2000. He says he hasn't yet heard from the SEC about jumping the gun with the ad.

Other hedge firms, venture funds and private equity funds may now follow in Hoenig's footsteps, thanks to the JOBS Act. The rule re-write doesn't change whom those alternative investment funds can accept—investors with more than $1 million in investable assets—but it does eliminate some restrictions on how managers go about finding those clients. While only a few have made the move so far, the funds can now boast of their returns on websites, billboards, TV and magazine pages and can direct-mail high net worth individuals invitations to attend events and learn more.

This new transparency is likely to lead to some interesting questions for advisors. At worst, it could encourage some clients to siphon some assets away from their advisors and place them directly with these funds. "The rule change could be powerful," says Jerry Pascucci, head of alternative investments for UBS Wealth Management Americas. "The information in the marketplace will increase by orders of magnitude if someone can simply click on a website to see how a fund has performed."

That doesn't mean advisors or their firms are—or should be—going into panic mode. At this point, many details remain unanswered about how and even if advertising would work for hedge funds and their brethren. For one, funds that use commodities as part of their strategies must wait for clarification on the rule from the Commodities and Futures Trading Commission before advertising. The administrative side of advertising (which includes making a filing with the SEC) may also be overwhelming for small funds that would benefit the most from reaching individual investors.

Funds "need to plan out a strategy if they want to use general solicitations," notes Anna Pinedo, a partner with law firm Morrison Foerster in New York. Firms will need a compliance function to manage all marketing materials, control general solicitation and decide which fund personnel will lead the process.

Others say many funds won't be interested in finding new investors in such an unfiltered manner. "Advertising is not something our members have any interest in," says Brett Palmer, president of the Small Business Investor Alliance, a group of small private equity funds. While SBIA member funds often solicit individual investors, the approach is targeted at preferred investors, not a "come one, come all" approach," Palmer says.

Brand-Focused Advertising
But some say that hedge fund firms are starting to explore advertising strategies. "No one wants to be first," E5A Integrated Marketing CEO Andrew Corn says of the approximately 75 hedge funds he had spoken with as of late December about the possibility of advertising. "But we're working with them on that." He expects a busy first quarter with about a dozen proposals out at the end of 2013. Most of his campaigns will be targeted e-mail or direct mail to a select few; no mass advertising through TV or billboards will be undertaken.

Mitch Ackles, CEO of publicity firm Hedge Fund PR and president of the Hedge Fund Association, says he has also encountered high interest among the hedge funds he works with, with many exploring events alongside advertisements. But few plan to highlight their numbers.

"The majority of firms I've spoken to are not going to put performance data in their ads," largely because of the compliance disclaimers they'll trigger, he says. Instead, "you'll see ads that are brand-focused."

That's clearly the intent of a video released in December by hedge fund Topturn Capital, which has $100 million in assets under management according to its press release. Topturn's is one of the few widespread ads besides Hoenig's to date. The firm's video features shots of the California coast line and a professional surfer to flank the founders' explanation of the name of the firm. The ads contain no metrics of any sort. "Marketing is about starting those new conversations," says Topturn co-founder Dan Darchuck.

Branding will most likely extend to social media, too, particularly for those targeting the younger wealthy class. Hoenig notes that while his print ads have attracted a lot of attention, his Twitter postings on general economic topics tend to generate the most direct interest from potential investors. "The ads have helped build overall brand awareness and website visits, but social media encourages the interaction that makes customers more comfortable in establishing accounts," he says.

No Worries?
At this point, Wall Street firms say they are not concerned that the advertising will have a big impact on their business. Pascucci already has a large team examining a wide range of alternative assets to add to the firm's platform and says an advertisement isn't likely to provide entrance for an unknown fund.

If the hedge fund world advertises more aggressively, Pascucci does expect to see more "reverse inquiries," in which clients ask the firm to evaluate particular investments. Such inquiries "generally get declined," he says, as do most of the investments his team proactively explores.

Tarek Helal, vice president of product development in the alternative investments group for Raymond James, also expects minimal impact from whatever advertising occurs. "The reality is that the hedge fund product set is complex, and most clients don't have the ability to thoroughly vet funds on their own," he says. "We would view it as exceedingly rare for a client to leave the firm and seek advice elsewhere on the basis of access to a specific hedge fund."

Still, advisors should prepare for a potential uptick of queries about hedge funds. Depending on the client's sophistication, one way to deflect interest in a specific fund may be to pivot to a more general discussion about alternatives and the role they can play in the client's portfolio. An advertisement could be viewed as "a conversation starter, with the financial advisor playing an important role in the education process," Helal says.

In addition, hedge funds are complex and illiquid, and it's often hard even for sophisticated investors to sort through the volumes of paperwork involved in investing in one and to understand all the terms and conditions. Even if the investment strategy is clearly brilliant, the operational side of management—issues like how positions in the fund are valued, trade reconciliation processes and restrictions on cash movement—can still be surprisingly murky.

Finally, advertising by its very nature could be counter-productive to hedge funds. "The more you've heard about a [hedge fund] manager, the less you probably want to be with them, because you want to get into the next big thing, not yesterday's big thing," says Justin Ryan, a senior portfolio manager with UBS Private Wealth Management who counts hedge fund managers as clients and runs his own fund of funds.

If a client is still dead-set on a particular fund, look for creative ways to work with it. While it can be more challenging to work with off-platform assets in a wirehouse environment, the funds may be willing to help, as few are looking to disintermediate advisors.

"I expect advertising to increase awareness of my fund to both high net worth individuals and financial advisors, allowing all market participants to make more educated and thoroughly considered choices when it comes to their portfolios," Hoenig says. "That benefits us all."