Our thinking Quick reads Is a misinterpretation of the advertising rules holding back your fundraising?
 
Loud & Clear
February 2020
4 min read

Is a misinterpretation of the advertising rules holding back your fundraising?

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Got into an interesting discussion at a recent networking event with an experienced 3rd party marketer. It centered around the use of alternative mediums for alternatives managers in fundraising. It became quickly clear that our understanding of the rules around private placement marketing – and opinions on the use of those tools – was not in agreement. And by “not in agreement,” I mean – we were at completely opposite ends of the spectrum.

When I mentioned the extent to which we push to incorporate things like video, data analytics, and social media into client projects, he gave me one of those sideways looks. You know, that look of polite, but not so polite, disgust. When I further mentioned our role in creating the first hedge fund advertisement in the United States several years back, he let out a hearty cackle (or maybe it was more of a chortle…I can never tell the difference). Either way, I clearly hit a nerve which lead him to blurt out, “Seriously! An advertisement?? How much did that cost your client in fines?”

Unsurprisingly, he is not the first person to cackle / chortle at me when this stuff comes up. But I actually enjoy these conversations because they almost always lead to a healthy discussion. They also seem to always start the same way. First, there is the lecture about how they, “only work with institutional investors” and how that kind of stuff may work for retail and other non-accredited investors, but “I am regulated by FINRA as a registered representative, and my compliance officer would never allow that.”

Now of course, I am not in the business of making-up rules that could potentially put clients, colleagues, or myself at unnecessary risk. So, after being admonished, I then point out that I have been registered for a couple of decades, as well, have held lots of licenses, and at one point even ran an institutional trading desk for a large bank which was stuck right next to the compliance team.

After the requisite defense of my experience, I usually then ask why it has become so mainstream to use many of these mediums – particularly with larger alternatives managers that have come to use them pretty extensively. Think, Bridgewater – videos, Man Group – podcasts, Two Sigma – blog posts, Citadel – social media, etc.

That often leads to a conversation about rules and “could” versus “should”.

Could an alternative manager take out a billboard in Times Square displaying the name of his investment management firm? Believe it or not, the answer is actually, “yes.” That is, of course, different than the question of should a manager take out that billboard? To which I would tend to agree, the answer at this point is probably still, no.

But from the category of, you can’t make this up, his response was totally different. His assertion was that this non-traditional approach is not allowed but, “those big firms don’t care about the $200-300 million dollars that it costs in fines for general solicitation.”

Um…huh?? Citadel doesn’t care about a couple hundred million in fines (and the corresponding reputational hit)? I have to admit – I had never heard that one.

Here’s the thing…there are many reasons to disagree with me. Argue tradition. Argue an opinion about appropriateness. Heck – argue that you think marketing a fund is a sign of desperation, if that’s what you think. But don’t call me out on pure ignorance.

But as Daniel Patrick Moynihan is famous for saying, “everyone is entitled to his own opinion, but not his own facts.”

The takeaways…

1). Market your fund however you feel comfortable marketing it – but stop letting industry traditionalists dictate how aggressive you can be if they aren’t going to bother learning the actual industry rules.

2). Chortle more often – it’s surprisingly stress relieving.

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