A proposal to scrap a ban on public advertising for private investment funds in the United States may prove a positive for alternative asset managers, but could pose an increased risk for investors, says Moody’s Investors Service in a new report.
The rating agency says that a recent proposal from the U.S. Securities and Exchange Commission (SEC) to lift an 80-year old ban on public advertising for private investment funds “has positive credit implications for alternative investment managers”; noting that a final ruling on the proposal is expected sometime in 2013.
However, it also cautions that this could represent a risk to some investors. “Alternative investment managers’ wider communication with investors will boost capital raising, but may present investors with risk from misleading advertising and increased fraudulent activity,” says Rory Callagy, a Moody’s vice president and senior analyst. “Still, in a highly competitive market, advertising also provides investors with information that can help them differentiate previously opaque providers.”
That said, Moody’s says that it doesn’t anticipate a media blitz from alternative investment managers if, and when, the SEC approves of final rules. Rather, the rating agency expects alternative investment managers to “take a measured approach to advertising given their lack of experience communicating openly with investors and the broader public, as well as to ensure brand preservation and the related exclusivity of these products.”