Ten trillion dollars – the staggering sum estimated to reside within the community of potential retail investors, is soon to be unlocked by the Security and Exchange Commission’s rule changes – a direct result of the language in the JOBS Act of 2012. The global hedge fund industry currently has almost $2.5 trillion in assets under management, almost 75 percent (around $1.9 trillion) of which resides in North American hedge fund firms.
The hedge fund industry, muzzled by statute and constrained by regulation for more than eight decades, is about to allow the public a peek behind the curtain. This reveal may disclose a Sophia Lauren or an Anne Ramsey—we should know in the coming months.
Signs of Change
Fox Business Network, for example, has recently launched Risk and Reward with Deirdre Bolton. Bolton, formerly with Bloomberg Television, occupies a one hour slot focusing on hedge funds, private equity, venture capital, and real estate investments. Such a program, geared to the retail investing community, would not have been possible prior to passage of the JOBS Act. Its success, however, hinges on the hedge fund industry’s willing participation and that is the subject of some debate at the moment.
Mitch Ackles, president of the Hedge Fund Association, was quoted in a FINalternatives article, as follows: “While we won’t see hedge funds advertising on billboards, what we are already starting to see is hedge fund managers being more comfortable speaking to the media.”
Ackles is correct with regard to the billboards; only meager signs of retail marketing activity are surfacing, suggesting the industry is still in the process of gaining its sea legs. Just three hedge funds have actually produced marketing material to date; one company website video from Topturn Capital, a print ad in Crain’s Chicago Business by Capitalistpig, and a half-page ad placed by Balyasny Asset Management in a trade publication.
A broader public interest in the hedge fund industry is also being reflected by the entertainment industry. In the works are at least two hedge fund related television dramas, Showtime’s Billions, and an as of yet untitled CBS offering that features an ex-Iraq war veteran turned hedge fund trader.
Sitting on the Sidelines
With few exceptions, the largest and most successful funds seem content to remain on the sidelines. One of those notable exceptions is Pacific Investment Management Company, LLC (PIMCO), which is seeking approval for an offering tailored to retail investors. The prospectus describes a liquid fund investing in interest rate, currency, credit, commodity and mortgage derivatives. The hallmark of the fund lies in the retail share class which sports a $1000 minimum, clearly within the scope of virtually all accredited investors.
The critics and proponents of the general solicitation ban’s repeal will soon learn if they were on the right or wrong side of the argument. However, one fact is already beyond dispute. The hedge fund industry is approaching its new found freedom with an abundance of caution and potential retail investors would be prudent to follow the industry’s lead.