Hedge funds will be allowed to advertise publicly for the first time since the 1930s
Private investment companies and hedge funds will be allowed to advertise to the public for the first time in almost 100 years, under a ruling made by the Securities and Exchange Commission Wednesday.
The move, seen as a nod to the world of social media and the Internet, where nothing is secret, is also seen as a problematic measure for investors while it is a boon for business firms offering those types of investments.
The new rules would allow hedge funds to advertise to anyone and be able to do so through electronic media as well as in print. This anticipated ruling came as a result of a provision in the Jobs Act passed last year which mandated the SEC allow advertising for hedge funds. The ruling also applies to small companies with private offerings, which are exempt from publicly reporting financial statements.
The SEC said private offerings raised $899 billion in 2012, compared to $228 billion through registered stock sales and $976 in private debt sales.
A Millionaire Corner study of investors in the Ultra-High Net Worth category ($5 million to $25 million in net worth) indicated that the popularity of hedge funds as an alternative investment has grown over the past two years. In 2010, 7 percent indicated an interest in investing (or investing more) in hedge funds, and the number jumped to 19 percent in 2012.
The survey also indicated that hedge fund investment is most popular among young investors, with 36 percent of those under the age of 44 reporting investment plans in hedge funds. The overall interest percentage was just 9 percent, and older investors are often looking at less risky investments.
Since the 1930s, hedge funds and private investments firms were seen as a vehicle only for the wealthiest of investors, who could withstand the sometimes hefty losses that can result from these investments. The Consumer Federation of America and other consumer protection groups are calling on the SEC to build in protections for investors, including raising the net worth limit to get involved, defining “accredited investors.”
Currently, accredited investors are anyone with a net worth of more than $1 million, or $200,000 plus in income. Investor protection groups believe those limits are too low, as those limits were set in 1982 and have not been adjusted for inflation.