(Bloomberg News) The firms most likely to benefit first from new rules that would allow hedge funds to conduct wide advertising campaigns aren't hedge funds.
BlackRock Inc., the world's largest money manager, offers alternative investments and supports the change. So does JPMorgan Chase & Co., the biggest U.S. bank by assets, said two people familiar with its position, who asked not to be identified because the matter is private. The companies have the marketing breadth to seize the opportunity, while hedge funds and private-equity firms with smaller promotional teams may be hindered as investors turn to alternatives for higher returns.
The Jumpstart Our Business Startups Act, signed into law by President Barack Obama in April, ended a ban on the advertising of non-registered securities as part of an effort to expand funding options for startup companies. The law may give the biggest advantage to firms with trillions of dollars in assets and create a divide between asset managers that offer hedge funds, private equity and other alternatives and those that don't, such as traditional mutual-fund companies.
"The JOBS Act is something where the advantage is for hedge funds, but they don't have the skills for it and the traditional managers that have alternatives have the capabilities to take advantage of it," said Benjamin Phillips, a partner at consulting firm Casey, Quirk & Associates in Darien, Conn.
The U.S. Securities and Exchange Commission is responsible for writing the rules to implement the law and commissioners voted 4-1 on Aug. 29 to invite public comment on their proposal. Comments are due Oct. 5.
'Reasonable Steps'
The proposed rules say issuers must take "reasonable steps" to ensure the only purchasers of private securities are so-called accredited investors, without mandating what those steps are. Accredited generally means those with more than $1 million in assets, excluding primary residences, or people earning more than $200,000 a year.
The proposal has drawn criticism from investor-protection groups and the Washington- based Investment Company Institute, which say consumers may be exposed to misleading advertisements by firms that sell private securities.
The SEC also didn't spell out acceptable types of advertising, which could allow general solicitation such as television and website ads. BlackRock and others may be able to reach more than 7.6 million U.S. households that qualify as accredited investors, according to government estimates. Private offerings raised about $1 trillion last year, SEC Chairman Mary Schapiro said at an Aug. 29 meeting of the agency.
'Great Disinfectant'
"We are supportive of the JOBS Act and the SEC's proposed rule as we believe sunshine is a great disinfectant and it's time to take private placements out of the dark," Barbara Novick, BlackRock's head of government relations and public policy, said in an e-mailed statement.
Lauren Post, a spokeswoman for New York-based BlackRock, declined to comment beyond the statement. Charlotte Powell, a spokeswoman for JPMorgan, declined to comment.