Marketing Funds 101

Marketing Private Funds in the U.S.: Key Considerations for Fund Managers

This article is part of a series on marketing private funds. Future installments will explore topics such as the SEC’s Marketing Rule and the use of hypothetical performance data.

Marketing private funds to investors requires fund managers to navigate a complex regulatory landscape. In the United States, a robust framework of laws, rules, regulations and guidelines governs the marketing of private funds. Ensuring compliance is critical to avoid regulatory penalties, protect investor relationships, and prevent potential investor rescission rights that may arise from violations. Below, we outline key points for U.S.-based fund managers to consider when marketing private funds.

1. Understand the Distinction Between Private and Public Offerings

Private funds in the United States are typically marketed under exemptions from public registration, such as Regulation D. Fund managers must ensure that their marketing materials and activities align with these exemptions, which often prohibit general solicitation or advertising. Familiarize yourself with the specific rules and limitations under U.S. securities laws to maintain compliance.

2. Know Your Target Audience

Private fund marketing involves targeting accredited investors or qualified purchasers as defined under U.S. regulations. Fund managers should ensure their efforts are directed at investors who meet these criteria. Conduct verification processes to confirm the eligibility of potential investors before sharing fund details. This step not only ensures compliance but also helps build credibility with your audience.

3. Maintain Clear and Accurate Disclosures

Transparency is essential in fund marketing. Marketing materials should provide clear, accurate, and non-misleading information about the fund’s objectives, risks, fees, and performance. Avoid exaggerated claims or statements that cannot be validated. Ensure that all disclosures adhere to U.S. regulatory requirements, including those outlined by the Securities and Exchange Commission (SEC).

4. Leverage Pre-Existing Relationships

Fund managers often rely on substantive pre-existing relationships to market private funds without engaging in general solicitation. Cultivate and maintain these relationships to support compliant marketing efforts while expanding your investor base. A well-managed network of relationships can be instrumental in securing long-term investment commitments.

5. Avoid General Solicitation Pitfalls

General solicitation—such as public advertising, social media posts, or broadly distributed emails—can jeopardize a fund’s exemption from registration. Carefully review all marketing activities to ensure they do not violate the prohibition on general solicitation under Regulation D. Adopting a cautious approach helps safeguard the fund’s compliance status.

6. Embrace Regulatory Filings

Private fund offerings in the U.S. require certain filings, such as Form D, to claim exemption under Regulation D. Ensure that filings are completed accurately and submitted on time. These filings demonstrate your commitment to compliance and provide critical documentation in the event of regulatory scrutiny.

7. Be Cautious with Performance Data

When presenting historical performance or projections, adhere to SEC guidelines on how performance data should be displayed. Always include appropriate disclaimers and ensure that the data is accurate, complete, and not misleading. Misrepresentation of performance data can lead to significant regulatory and reputational consequences.

8. Marketing Outside the U.S.

If your marketing efforts extend beyond U.S. borders, ensure compliance with foreign regulations. However, prioritize adherence to SEC and other domestic rules, as U.S. regulations are generally among the most complex and sophisticated globally, and the likelihood of enforcement actions from regulators or litigation from investors is higher in the U.S. than in most other jurisdictions.

9. Train Your Team

Ensure that all team members involved in marketing understand U.S. regulatory requirements and the risks associated with non-compliance. Regular training programs can help prevent inadvertent violations and reinforce a culture of compliance within your organization.

10. Engage Legal Counsel

Given the complexity of U.S. fund marketing regulations, seeking legal advice is essential. Legal counsel can review your marketing materials and strategies, providing guidance on structuring offerings, disclosures, and investor communications. This expertise can mitigate risks and enhance the credibility of your marketing efforts.

Conclusion

Marketing private funds in the U.S. involves balancing the need to attract investors with the obligation to comply with stringent regulatory requirements. By understanding the rules, implementing best practices, and seeking professional guidance, U.S.-based fund managers can effectively promote their offerings while minimizing risks and fostering trust with investors.