I began exploring the difference between advertising the soup and advertising the securities in yesterday’s post. That is, I looking for distinction between a private equity firm advertising in relation to its portfolio companies or real estate holdings, and advertising its performance as an investment adviser. Portfolio company advertising is outside the legal framework under the Investment Advisers Act restrictions on advertising.
I thought the gun-jumping rules under the Securities Act might provide a useful framework to help determine whether an ad is about the soup or about the securities.
The default would seem to be that any advertising by a firm could be considered an advertisement for the firm’s securities, depending on the facts and circumstance. The SEC has explained that
“the publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer . . .” Guidelines for the Release of Information by Issuers Whose Securities are in Registration, Release No. 33-5180 (Aug. 16, 1971) [36 FR 16506]
In the 2005 Securities Offering Reform, the SEC created safe harbors under Rule 168 and Rule 169 for factual business information, which included advertisements or information about a firm’s products or services. These rule reinforce the ability to advertise about the portfolio company or real estate as long as its not an advertisement about the investment adviser.
It would seem that a portfolio company’s advertisements that do not mention its private equity owner are perfectly okay. Once the private equity manager is mentioned, you need to make sure the advertisement is focused on the portfolio company and not the success of the registered private equity fund manager.
It’s harder to put this in the context of a registered real estate fund manager. Tenants have a keen interest in the owner of the real estate. They want to know that the landlord has the financial resources to keep the building running and to live up to its obligations under the lease.
There is surely a distinction to be made between a real estate fund manager as an operator of real estate and as an investment adviser. I’m still looking for some guidance.
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