Friday Letter Get a move on

Rulemaking to lift the general solicitation and advertising ban in Regulation D has been delayed yet again. It’s unclear how long the delay will last – and that’s part of the problem.

In less than one week from now, the repeal of the general solicitation and advertising ban on private funds, as mandated by the Jumpstart Our Business Startups (JOBS) Act, could be a few steps closer to becoming reality. That’s because the US Securities and Exchange Commission (SEC) is scheduled to hold a meeting on 29 August to vote on whether it will propose rules that would allow private equity and real estate firms to more openly market their funds to investors.

That is, of course, if the meeting actually takes place. The SEC already cancelled a meeting, originally scheduled for earlier this week, where it was expected to adopt interim rules to implement the repeal of the solicitation and advertising ban and subsequently seek public comment on those rules. That meeting itself was scheduled more than a month-and-a-half after the original deadline to adopted new rules, which was supposed to be 90 days after the JOBS Act was signed into law.

The SEC’s decision to receive public comment on proposed rules before adopting a final rule is understandable, given the concerns of some stakeholders that the agency would be rushing ahead if interim rules were adopted beforehand. There does need to be time spent considering the potential harm of lifting the general solicitation ban.

That said, while the SEC may have credible reasons for delaying the advertising rules, it still needs to be held accountable for those delays, especially when the rulemaking has been directed by a legislative mandate. In fact, a congressional subcommittee has called SEC Chairman Mary Schapiro to testify at a 13 September hearing that will examine the agency’s implementation of the JOBS Act and its failure to implement the repeal of the general solicitation ban.

Without an established timeline, the repeal of the general solicitation ban runs the risk of becoming perpetually delayed, and delaying the advertising rules only adds another layer of uncertainty for an already uncertain private equity real estate industry.

True, the potential repeal of the general solicitation ban hasn’t had much of an impact on fund managers to date, as firms have continued to bring funds to market and raise capital in much the same way as they always have. Still, newer real estate fund sponsors have told PERE that they would take advantage of being able to more openly market their offerings if these rules were relaxed. Additionally, given the challenging fundraising environment, it’s likely that existing managers also could stand to benefit from fewer marketing restrictions.

None of that is going to happen, however, as long as the SEC continues to stall on the advertising rules.

If the SEC commissioners approve a proposal at next week’s meeting, the rules would be subject for a public comment period that would likely last another 30 days. Still, the timing of the final adoption of the rules remains unclear, as it would depend on the number of comments and the complexity of the issues that are raised.

It’s one thing if the SEC needs more time to implement the lifting of the general solicitation ban, but it shouldn’t get an indefinite extension. The agency needs to give a schedule for rule adoption and stick to those deadlines. Uncertainty isn’t killing the sector, but nonetheless it’s time to get a move on.