The Jumpstart Our Business Startups (JOBS) Act cleared the final hurdle to becoming law, having been approved by President Barack Obama at a White House signing ceremony Thursday.
The JOBS Act will institute a number of broad reforms that affect how private equity and private equity real estate is regulated by the federal government. Chief among them is the easing of restrictions on advertising and solicitation of investors for private investment vehicles.
Under previous US Securities and Exchange Commission Regulation D guidelines, firms were prevented from publicly distributing information about their funds, which contributed to the industry’s reputation for opacity. The JOBS Act opens the possibility to firms, in theory, of broadcasting their fundraising efforts through mainstream outlets like print advertisements or social media.
While some sources have told sister publication Private Equity International that the elimination of these guidelines will help new or smaller firms raise their profile, others have strongly cautioned fund managers from showing their cards too soon. The Dodd-Frank Act required many private equity firms to register as financial advisors, which in turn subjects them to solicitation and advertising guidelines that are quite stringent – though less so than those under the previous regulatory regime.
“One other issue that I would caution GPs about is that any exemption that the new regulations might provide do not eliminate the restrictions imposed by state securities laws nor do they eliminate the restrictions related to any capital invested overseas. Managers should continue to consult their legal counsel and other advisors on all issues that could impact marketing, positive or negative,” said Eric Zoller of placement agent Six Point Partners.
Furthermore, firms are still responsible for assuring that their funds’ limited partners include only accredited investors.
In addition to loosening public information pertaining to fundraising, the JOBS Act also allows companies to “crowd-fund” by issuing shares in exchange for capital, as well as easing barriers to initial public offerings for emerging companies. The legislation earned unusually bipartisan support in Congress, passing the US Senate by a vote of 73 to 26 and the House of Representatives by a vote of 380 to 41.