These are my notes from the a New Era of Fundraising and Marketing session at the Private Fund Compliance Forum 2012.
Julia D. Corelli, Partner, Pepper Hamilton LLP
Kurt A. Krieger, Legal Director, Huntsman Gay Global Capital, LLC
Jason Ment, Partner, General Counsel & Chief Compliance Officer, StepStone Group LLC
Helane L. Morrison, General Counsel & Chief Compliance Officer, Hall Capital Partners LLC
False advertising is prohibited, regardless of whether your firm is registered. Puffery and misleading statements are prohibited. Until the JOBS Act’s new rules go into effect, a registered adviser cannot advertise or generally solicit. Facebook, twitter and bulk email is bad. You need a existing, substantive relationship before contacting someone to solicit a commitment as part of fundraising.
Testimonials are bad. You can’t have friends say great things about you in advertising. It’s not just testimonial about the investment manager, but testimonials about the portfolio companies. The panelists shared stories of SEC deficiency letters that specifically dinged managers.
Deal lists need to be based on objective criteria that does not skew the results. You can’t have a bad pattern.
You need disclosures that past performance is not an indication of future performance.
Performance numbers need to be net numbers and not gross numbers. None of the guidance is tailored to the private equity space where calculation of performance is very idiosyncratic.
The SEC has indicated that exams will be focused on performance information in marketing materials. That points right at the valuation issues behind that performance.
Political contributions are a hot button. If you are going to solicit state or local pension funds, you need to limit political contributions to certain candidates and the political parties in that state. There are also state and local lobbying rules that could apply. See California for example that makes certain internal people fall into the statutory definition of lobbyist.
Summary, all marketing materials should be approved by compliance before being set free into the wild.
The panel expressed some concern that the JOBS Act changes may not be as simple as deletion of the ban on solicitation and advertising.
When using benchmarks, it’s important to use appropriate benchmarks. You can’t be misleading. It needs to be an apple to apple comparison.
You need to be cautious when communicating with investors during a fundraising period. If it could be used to entice the limited partner to invest in the next fund, it could be considered advertising and subject to the marketing limits.