Market reform frees private funds to target US investors

US lifts ban on funds advertising offerings to professional investors

New US legislation has lifted the restrictions on private funds marketing themselves to professional and institutional investors. The change will help boutique fund managers to reach a wider US investor base.

“If we or anybody else wants to market a European fund in the US, there has been an increasing amount of Securities and Exchange Commission regulation to consider – even when marketing to institutions,” said Gerald Parkes, chief executive of Pacific Real Estate Capital Partners.

“It is sensible for the US to not to put road blocks in the way of professional investors.” Jos Short, executive chairman of Internos Real Investors, added: “It’s extremely good news. It means managers can talk about fund raising, which will help in marketing funds.

“There are a lot of opportunistic managers in the market now trying to raise capital. For them it is very good news.” Before, private funds that did not want to fall foul of the SEC were not allowed to advertise or promote their offerings publicly.

Rule 506 of regulation D of the US Securities Act allows non-public or private offerings of securities, mainly to “accredited investors”, and is widely used by private funds to raise capital.

However, the regulation also carried strict restrictions on how funds could promote their offerings; they were banned from advertising a fund, discussing it in the media, or in seminars or meetings.

These restrictions were an obstacle for foreign, new or smaller fund managers in accessing US institutional investors, since many of these do not have a well-connected US operation that can talk to their long-term clients directly.

The ban on press coverage has also limited what European fund managers could say about their vehicles in the European press. “It has always been the case that one should avoid any press commentary around a proposed fund,” said Parkes.

Section 201 of the Jumpstart Our Business Start-ups (JOBS) Act – enacted on April 5 –  requires the SEC to relax this rule within 90 days. “General solicitation” or “general advertising” will be allowed on offers and sales of securities if “all purchasers are accredited investors”.