Private-placement advertising begins quietly

Advertising for private funds and unregistered securities got off to a quiet start Monday, but market participants already are enjoying the latitude they now have to pitch their funds.

A new Securities and Exchange Commission rule lifts a ban on advertising private-placement investments to the general public. As in the past, shares of these investments can be sold only to investors who meet certain income and asset thresholds, but now they can be pitched in the press, the Internet — even on TV.

The new marketing environment allows Broadstone Real Estate LLC to be more aggressive in finding new investors for the two private real estate investment trusts it sponsors. It’s not limited only to the people who approach it directly.

“This is very exciting,” Broadstone chief executive Amy Tait said. “Now we can more openly talk about results to date, which have been very favorable.”

IssuWorks LLC, which helps banks and private funds raise capital, launched its own private offering today.

“I can mention our capital raise,” said David Weild IV, chairman and chief executive of IssuWorks. “This gives us a clear, safe harbor. It’s freedom of speech for private placements.”

Investor advocates, such as state securities regulators, and others in the securities industry have warned that the SEC did not go far enough to establish safeguards for advertising private placements.

Fred Weiss, managing director of MPC Capital Advisers LLC, doesn’t anticipate that ads for unregistered securities will flood the airwaves. But he is worried that there’s a potential for investor harm. He points to REIT bankruptcies over the last few years.

“Think how much worse that would have been if there had been direct advertising,” Mr. Weiss said.

Ms. Tait argues that the relaxed rules for private-fund advertising will help investors better navigate that market.

“This opportunity creates more transparency, more information and more tools for a prospective investor to use,” Ms. Tait said. “They have more alternatives to compare and consider.”

The new environment gives investors more leverage in the private market, said Todd Ryden, chief executive and founder of FNEX LLC, a website platform for alternative investment offerings.

“It now puts the investors and the issuers at parity,” Mr. Ryden said.

Despite the easier access to private investments — known as Regulation D offerings — it’s not a direction investors should go, according to Dan Hardt, owner of an eponymous investment advice firm.

“I think that Regulation D investments bring a risk/reward tradeoff that most investors are not familiar with, even ! if they are accredited,” Mr. Hardt said. “Losing 100% of an investment is not something most people have experienced or should experience.”

Backers of the regulation change contend that it will help startup companies raise money and create jobs more easily. The advertising may get off to a slow start, but Mr. Weild sees big things ahead.

“This is a sea change,” he said. “I believe five years from now, you will see $1 billion of advertising in this area."