Many advisers to private funds will be registering with the Securities and Exchange Commission this year. That means they will be subject to all of the SEC rules and regulations that apply to registered investment advisers.
One area of concern is advertising. To protect investors, the SEC prohibits certain types of advertising practices by advisers. An “advertisement” includes any communication addressed to more than one person that offers any investment advisory service with regard to securities. It is important to note that an advertisement includes both a written publication, such as a website, newsletter or marketing brochure, and oral communications, and includes any announcements made on radio or television.
Registered investment advisers are generally prohibited from:
- The use of testimonials about the adviser and any services provided by the adviser;
- References to past specific recommendations that are not properly qualified;
- Representations that graphs, charts, formulas or other devices can be used as tools for making investment decisions without explaining the limitations of their use; and
- Statements suggesting that reports, analyses or other services, are, or will be, free of charge, unless actually free without conditions or obligations.
For private equity funds, “advertisements” should be interpreted broadly and include flip-books, marketing presentations, letters to investors, due diligence questionnaires, press releases, press interviews etc.
The term probably does not extend to offering memoranda; however, many managers make it best practice to use the advertising rules as guidelines. A response to a specific request for a proposal from individual investors (RFP’s) would not be covered; however, if the fund sponsor provides substantially similar information to multiple investors, the Advisers Act advertising provisions apply.
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