Managed Funds Association (“MFA”) submitted a comment letter (the “Letter”) to the Securities and Exchange Commission (“SEC”) on January 6, 2012 with a rulemaking petition requesting the SEC to amend Rule 502(c) of Regulation D under the Securities Act of 1933. The Letter urges the SEC to exempt private funds from the ban on general solicitation and advertising under Regulation D.
Under the existing framework, hedge funds generally must avoid engaging in any “general solicitation” or “general advertising” in connection with offers and sales of their securities. MFA believes that changes in the securities markets and regulations have rendered the restrictions of Regulation D, enacted 30 years ago, unnecessary and increasingly unclear in practice. The Letter’s suggested changes would enhance the regulation of private fund offerings, promote investment, and enhance economic growth by:
- Reducing the legal uncertainty resulting from the current regulation of private fund offerings conducted in reliance on Regulation D;
- Increasing transparency of the hedge fund industry in a manner consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act and recent regulatory initiatives;
- Facilitating capital formation and reducing administrative costs by allowing investors to more easily obtain information about private funds;
- Maintaining strong investor protections and ensuring that only sophisticated investors are able to purchase interests in private funds; and
- Reducing regulatory oversight costs and allowing the SEC staff to reallocate resources to other aspects of investor protection, including products offered and sold to retail investors.
If the MFA proposals were adopted, private funds would be able to engage in public communications and offering activity while remaining in compliance with Regulation D and the Investment Company Act of 1940. It would also allow a wider audience to learn about the hedge fund industry, and help combat inaccurate information and misperceptions of the industry. These misperceptions include the view of the industry as secretive, which creates an unwarranted negative inference by investors and regulators.