[Infowarrior] - Here come the hedge fund ads

[Richard Forno]

Fund Managers Seek Their Inner Ad Men

Opaque Industry Studies Marketing Ahead of Rule Change

By SUZANNE VRANICA, JULIET CHUNG and JESSICA HOLZER

http://online.wsj.com/article/SB10000872396390444230504577615442169965050.html

"Invest in hedge funds: because you are worth it."

"Alternative investments are it."

"It's not your father's hedge fund."

Those are just a few hypothetical slogans that could appear on a billboard near you as a result of a planned relaxation of a ban on hedge-fund advertising.

While many hedge funds say they aren't rushing out to buy up TV ads and rename sports stadiums like their more visible brethren in the banking world, they are testing the waters for what the new freedom could mean for this opaque industry.

U.S. regulators are expected Wednesday to propose loosening restrictions banning private-investment firms from advertising—a provision contained in the Jumpstart Our Business Startups, or JOBS, Act.

The new law, passed in April, directs the U.S. Securities and Exchange Commission to reverse a long-standing ban on general solicitation for certain private offerings so long as firms take reasonable steps to verify investors in these deals are "accredited investors," institutions or people who meet certain lofty income or asset thresholds. Some hedge funds adhere to stricter criteria.

Hedge funds "are starting to do their homework," said Stacey Haefele, chief executive of HNW, a New York marketing firm that works with financial clients. In recent weeks, Ms. Haefele said, she has fielded a handful of calls from small funds asking what kinds of advertising methods they should consider and how much certain types of ads cost.

                                                
Some of the funds turning to Madison Avenue are looking for ways to broaden their appeal as they hunt for investors. Persuading potential investors to open their checkbooks has turned more difficult for many funds, especially for smaller firms, amid greater competition and pressure on the industry to dial down its traditionally high fees. A flurry of launches has left the field more crowded and pensions, endowments and other institutions are turning increasingly to large, established managers.

"We are looking to raise money, and the ability to source new investors that are beyond our traditional networks is appealing," said Michael Mahaffy, chief executive of Point Capital Aligned Wealth LLC, a hedge fund that launched earlier this year.

Mr. Mahaffy said he recently reached out for advertising advice from Consigliere Brand Capital LLC, a marketing agency that also has an investment arm. He said he also intends to explore the use of social media.

Whitebox Advisors LLC, a $2.3 billion hedge-fund and mutual-fund firm in Minneapolis, is awaiting clarity from regulators, said Mark Strefling, the firm's chief legal officer. Already, though, the prospect of loosening restrictions has sparked discussions.

"We're not necessarily going to be focused on soliciting for our funds, but on broader identification of Whitebox as a thought leader," Mr. Strefling said.

Industry executives and lawyers predict that most big firms will tread cautiously, eschewing traditional tactics such as glossy ads in popular magazines or high-profile sports sponsorships that often are used by banks and other financial firms. The exact contours of the new rules aren't yet known, they say, and other restrictions by some states and regulatory agencies remain in place. And since most of those funds don't target retail investors, some question the benefits of marketing to the masses.

Many of the bigger Madison Avenue advertising agencies say they haven't been approached, but smaller firms, including DiMassimo Goldstein, have received inquiries from hedge funds, the ad firms said. DiMassimo is a New York-based ad firm that has worked with CNBC, Barclays PLC and SunTrust Banks Inc., among others.

The advertising ban, which dates back to the Securities Act of 1933, came into the spotlight last year when Facebook Inc. FB +0.98% raised $1 billion from investors while it was still a private company. Under SEC rules governing private offerings, Facebook had to adhere to the advertising ban in order to issue the shares without registering them with the SEC and opening its books to the public.

Bankers from Goldman Sachs Group Inc. GS +0.35% advised Facebook to sell the stock only to non-U.S. investors because they believed the intense media spotlight surrounding the deal left the company in danger of violating the ban.

House Oversight Committee Chairman Darrel Issa (R., Calif.) argued the rules were outdated, and Sen. Jon Thune (R., S.D.) and Rep. Kevin McCarthy (R., Calif.) spearheaded the push to include a provision lifting the ban in the JOBS Act.

After the proposal expected Wednesday, the SEC must vote a second time to make the rules final. That could happen sometime this fall, though investor groups are urging the commission to take more time to consider adding restrictions before finalizing the rule. Meanwhile, SEC Chairman Mary Schapiro is facing increasing pressure from Republican lawmakers who are angry the regulator has blown well past the law's June deadline to lift the ban.

Few ad executives expect hedge funds to approach that level of spending given the small audience firms will be targeting. Still, in an industry with big personalities and thousands of firms, some are likely to dive in.

"I am hellbent on creating a global brand and the only way to do that is through advertising," said Anthony Scaramucci of fund of hedge funds SkyBridge Capital, which manages $3 billion in assets and hosts a star-studded industry conference in Las Vegas.

Earlier this year, Mr. Scaramucci had lunch with a midsize New York ad firm he says he could hire if the ban is lifted, adding he was waiting to learn what rules the SEC would issue and for his lawyers to approve any plans he might hatch.

"The media likes to focus on the person that made a billion, the person who lost a billion and the person who stole a billion, so what happens is the general public has an image that we are gunslingers," Mr. Scaramucci said. "I don't want SkyBridge defined by that."

Write to Suzanne Vranica at suzanne.vranica at wsj.com, Juliet Chung at juliet.chung at wsj.com and Jessica Holzer at jessica.holzer at dowjones.com

A version of this article appeared August 29, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Fund Managers Seek Their Inner Ad Men.

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