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Hedge Fund Ads on the Super Bowl Blimp

Lessons learned from advertising deregulation

September 2014

Now that the SEC permits advertising for private securities offerings, how should alternative investment managers go about promoting their private equity and hedge funds? Private securities issuers are not the first to face the end of a longstanding advertising ban, so a look at how others handled the same situation can provide examples.

For most of the 20th century, government and trade organizations controlled access to advertising for a select few professions and industries. For instance, regulations prohibited pharmaceutical manufacturers from airing TV or radio spots. The problem stemmed from FDA rules mandating risk disclosures so elaborate and detailed that only ads as long as infomercials could accommodate all the warnings and side effects.

In 1997 the FDA curtailed its risk disclosure requirements, and now in the U.S.—one of only two countries in the world that allows explicit pharmaceutical advertising—commercials promoting prescription drugs blanket the broadcast and cable landscape. These spots usually show happy consumers enjoying middle-aged health, while voiceovers disclose their medications’ disagreeable side effects, sometimes including “thoughts of suicide” or even death.

The legal profession is another field that long operated above the noisy pursuit of self-promotion, although government regulation had nothing to do with attorneys’ public modesty. Instead it was the American Bar Association that enshrined in its code of ethics a comprehensive ban on attorney advertising. Worried that ads might make its members look bad, the ABA kept the airwaves clear of law-firm commercials until the ban was overturned by—what else?—a lawsuit. Today daytime television programming teems with attorney advertising—especially trumpeting tort lawyers, or “ambulance chasers,” and the tens and even hundreds of millions they’ve won for their clients.

While private equity firms can look to law firms and drug companies for guidance on advertising, they also can learn from banking institutions, where advertising is a time-honored tradition. Banks tend to favor high-end commercials whose expense and production values distance them from the ambulance chasers and medication merchants. These commercials stand apart in another way, too. Instead of selling products and services, they promote the financial institutions themselves—they sell the brand. Banks spend vast amounts of money, both staking out a spot on the brand spectrum, and protecting that brand against encroachment from competitors.

With the SEC ban abolished, advertising for bank-like corporate branding as well as the more pedestrian hard sell are now available for private securities offerings. Should issuers follow the path of the law firms and drug companies?  It’s only a matter of time. The annual income qualification threshold for investment in private securities is low enough—$200,000—to include a very large number of potential investors in advertising markets like New York or Los Angeles.

Issuers of private securities are now in a position to showcase their offerings and seize their own spot on the brand spectrum. The starting gun has just gone off, and the playing field is level—for the moment. But this moment will quickly pass as each competitor stakes out its brand as the smarter, faster, safer or more transparent. Whichever watchword they claim, the time has arrived to use advertising both as a selling tool and as a brand-builder.

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