Unregistered hedge fund marketers, that is. Important distinction (for now).
Let me explain.
Hedge funds (i.e., IA firms) that use third parties (finders/consultants/solicitors/placement agents) for introductions to potential investors may face a new limitation. In June, SEC adopted the 'pay to play rule' which, among other things, "Prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions." (See SEC news release.)
What this means is that IA firms/hedge funds cannot pay an unregistered entity for introductions to public pension plans. The entity has to be an SEC-registered investment adviser or a registered broker-dealer. So you FINRA member BD's out there are in a stronger position when competing with unregistered finders (you know who those guys are...the ones not reading this blog). These unregistered types will now have to, under temporary Rule 15Ba2-6T of the Securities Exchange Act of 1934, register as "municipal advisors" by October 1, 2010. See SEC's links about Form MA-T. (And don't ask me why they decided to spell 'advisors' with an 'o' this time...?)
Back to you, the FINRA member firm who offers investments in hedge funds, sometimes to public pension funds: What changes? Nothing yet, as far as I can tell. But be on the lookout for new rules from FINRA about this sales activity. Not sure how much misery they'll inflict on you, but somehow I think it will be mildly annoying at very least. Stay tuned.
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