As the manager of The Pawleys Dividend Fund and The Pawleys Growth Fund, I am excited.  Effective today, a ruling by the Securities and Exchange Commission will lift an age-old ban on advertising by private investment funds.  Mandated by Congress last year as a part of the Jumpstart our JOBS Act, the change removes restrictions on business growth and capital formation.  By allowing private funds, including hedge funds, to publically solicit for new investment dollars, the new rule will free capital formation within the economy.  The additional stimulus will lead to growth and the creation of new jobs.  Last year, the SEC started accepting comments from the public about the new ruling to finalize the structure.  Investor advocates are concerned that people may be unable to evaluate risks associated with investing in private funds.  To protect investors from fraudulent offerings, the SEC added a brand new “bad actor” rule that disqualifies individuals with certain criminal convictions or prior fraudulent activity from offering these securities.

In reality, hedge funds and privately offered funds are only open to high net worth clients who tend to have more experience investing, and hence can evaluate sophisticated funds.  Each Pawleys fund carries a $100,000 initial minimum investment, and both fall under the new ruling.  Investor advocates are concerned, but the added transparency is a huge bonus for the public.  Managers who have delivered solid performance can now shout it from the rooftops and be recognized for their results, and those managers who fall behind will be revealed.  I provides complete transparency to my investors by publishing all portfolio holdings.

Until now, it has been virtually impossible to find general information about hedge fund and private equity investments.  Websites that publish information lock out the public by requiring usernames and passwords to gain access.  The new transparency will make information more readily available to prospective investors, making it easier to compare different funds.  The ruling applies to funds that are not registered with the SEC, but are formed under Regulation D Rule 506 of the Securities Act of 1933.  To improve their ability to monitor the market and protect investors, the SEC has also incorporated additional filing requirements for unregistered funds.

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