DIANE HARRISON Much Ado About Nothingin Other Words, the JOBS Act is Finally Here

This article appeared on AllAboutAlpha on 14 October 2013 http://allaboutalpha.com/blog/2013/10/13/much-ado-about-nothing-in-other-words-the-jobs-act-is-finally-here/

MUCH ADO ABOUT NOTHINGIN OTHER WORDS, THE JOBS ACT IS FINALLY HERE

ccording to investopedia.com as much a source of expertise on Dodd-Frank as most of the pundits who have been chattering for years about the Act, and one that is arguably as publically available and informationtransparent as the creators of the JOBS Act seek to make the financial investment world The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply "Dodd-Frank," is supposed to lower risk in various parts of the U.S. financial system by creating more transparency and imposing more controls on the overall process. After more than three years of speculation, disinformation, obfuscation, and Congressional delays, the longanticipated JOBS Act made its official debut on September 23, 2013. THE BUCK STOPS HEREAND HEREAND HERE It began amidst much anticipated industry fanfare, but whos excited about it? There has already been so much coverage of the Act, led by attorneys seeking to explain the vagaries of the Act itself in terms of action steps and potential ramifications of failure to comply with its requirements, that another attempt to cover this same ground would be lost in the growing pile of info-speak already produced. Boiled down, the Act has already spawned and will continue to produce a wealth (no pun intended) of new oversight committees, government regulations, legal requirements, formal filings, and other related minutia that financial firms will need to navigate through and comply with in order to participate in this brave new world of public disclosure for the former private placement efforts in which they engaged. With all the hype surrounding the JOBS Acts pushing the envelope for public access to information about former private of investments, it is important to remember that every investor who ultimately purchases one of these must be accredited. The cry for public information is a bit of a misnomer, as only the same small minority of individuals is eligible to act on these investments, as has always been true. On the face of it, there seems to be no issue with an attempt to give these investors more ability to see performance data and to learn more about the range of financial managers with whom they might invest. Ah, but as in most Congressionally-inspired actions, the devil lies in the details. Returning to our expert information source, investopedia.com: Dodd-Frank established new government agencies such as the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitors the performance of com panies deemed too big to fail in order to prevent a widespread economic collapse. The new Orderly Liquidation Fund provides money to assist with the liquidation of financial companies that have been placed in receivership because of their financial weakness. Additionally, the council can break up large banks that may pose a risk to the financial system because of their size. It can also quickly and neatly liquidate or restructure firms it deems too financially weak. With all the additional effort and work (i.e., costs) that this entails, who is going to reap the rewards such hassles should create? The lawyers who will get more work from parsing the meaning of all the permutations of the Act and its follow-on regulations; the administrators who will get more work from the Know Your Customer and additional accreditation requirements the Act imposes; the financial media who will try to sell more advertisements? But what about the intended beneficiaries of the Act: the money managers looking for more investors and the investors looking for better manager options in which to invest? Will they be helped by all this?
PANEGYRIC MARKETING| OCTOBER 2013

DIANE HARRISON Much Ado About Nothingin Other Words, the JOBS Act is Finally Here

ALL SOUND AND FURY, SIGNIFYINGWELL, NOT MUCH What none of the pundits want to discuss or debate is what lies at the heart of the investment community that the Act seeks to gain better control over: the investment managers of these private placements. If we consider this universe to fall loosely into three categories, the large players (lets call that over $5B AUM), the middle tier players ($500M to $5B AUM), and the smallest group (under $500M AUM), the basic reality is that Tier 1 is very well known, well established in its investor base, and generally has no trouble attracting new investors to offerings when interested in doing so. The Tier 3 group is, frankly, too small to pay and therefore too small to play in this new Dodd-Frank landscape that will generate additional compliance costs and governmental scrutiny. They just dont have the marketing budgets to make any significant gains to offset the great burden these new regulations would require from them, so they are effectively cut out of the conversation.

The middle group, Tier 2, would likely be the players most impacted by an ability to use the additional marketing techniques that the Act is intended to provide. However, the bang for this particular buck comes with a host of costs and potential pitfalls surrounding onerous disclosure requirements that have already been put into action through the Act. The list of these requirements is already long, with a raft of laws put into effect prior to the JOBS Acts official start date of September 23, 2013. This list shows no signs of slowing its growth, as additional requirements and filings are looming on the horizon. THE JOBS ACT IS A BAD DEALPARTICULARLY FOR SOME ACTORS The jury will remain out for the indeterminate future on whether or not this Tier 2 group of investment managers will actually be successful in utilizing the JOBS Act to increase their share of investor capital. Some of the more ominous compliance changes that the Act imposes, such as the so-called Bad Actor Rule, will require them to delve far deeper into their advisors, partners, and providers backgrounds than ever before. A good chunk of this Tier 2 manager pool will likely opt out of participation in the Acts marketing tactics at present to avoid the regulatory morass such activity triggers, and until more is known about how and what will happen to those managers who violate the Acts compliance requirements.. As noted on the industry law firm, Pepper Hamilton, LLPs website (www.pepperlaw.com) in their JOBS Act Resource Center:

PANEGYRIC MARKETING| OCTOBER 2013

DIANE HARRISON Much Ado About Nothingin Other Words, the JOBS Act is Finally Here

The Bad Actor rules will likely result in embarrassing revelations for some who had managed to keep their bad acts secret from their employers, or firms that kept an officers or directors bad acts secret from clients, investors and regulators. Given the dire consequences of disclosure or disqualification firms face with this rule, some bad actors could be fired or effectively barred from hiring, posing business and ethical dilemmas. Short of receiving an SEC exemption, firms that rely on, or are active participants in, Rule 506 private placements will have the choice of demoting, terminating or shifting bad actors responsibilities within the firm so that they do not participate in the offering. AND SO, ONCE AGAIN, THE INVESTOR IS LEFT HOLDING THE BAG (OF UNCOMMITTED CASH) This media furor reminds one of the mass agita created when we entered the new millennium, with the dreaded Y2K teeth-gnashing and portents of the doom to fall as the clock face swept us into the year 2000. As I recall, nothing much actually happened. Air traffic controllers could still land planes, computer hard drives didnt blow up and wipe out their memory banks, people could still access their money in their bank accounts, and time moved on. I suspect that marketing in both public and private domains will continue much as it always has, with institutional and accredited investors, who together form the foundation of the alternative asset investor base, still largely attracted to new investments through relationship building, face-to-face meetings, careful analysis of investment needs and risk tolerances, and ultimately, the survival of the fittest. In the world of professional managers supplying the investment choices, the reality is that it means hard work, patience, stamina, and perseverance beyond what is required in the average business model to grow an alternative firm. Its not for the faint of heart, nor for the average player. Any investment professional who is not exceptional need not apply. Just because there are thousands of alternative funds from which to pick doesnt automatically imply that they should all clamor for an equal share of attention from the investor community. In the end, cream generally rises to the top, and this food chain is no different in that respect.

Diane Harrison is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 and specializing in a wide range of writing services within the alternative assets sector. S he has over 20 years of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrisons work has appeared in many industry publications, both in print and on -line. Contact: dharrison@panegyricmarketing.com or visit www.panegyricmarketing.com.

PANEGYRIC MARKETING| OCTOBER 2013