Prior to the JOBS Act, general solicitation and advertising or
the placement agent did not a preexisting relationship. After the
JOBS Act, advertising and general solicitations are permitted as
long as sales are made only to accredited investors. Some of the
effects in the near future would be as follows.
- Now, there is a continuous scrutinization of preformation
claims made by hedge fund and private equity sponsors so this
moderation somehow put restrictions and affects indirectly in the
long run for potential investors.
- Those hedge funds and private equity sponsors who are not
qualified for SEC registration will have to consider restrictions
on advertising imposed by states under which they are
registered.
- There would be limitations and impacts on the structuring of
funds as the JOBS Act increases the threshold from 500 shareholders
to 2000 persons for registration under the Exchange Act for
becoming a public Company.
- This Act although made simplification for the registration of
securities but permit offers and sales of securities of up to $ 50
million. Thus, so-called "crowdfunding" will not be available to
raise funds for a private equity group or hedge fund.
- The Sweeping tax overhaul includes several provisions relevant
to private equity investment strategies, such as an increase in the
holding period for long-term capital gains with carried interest
and restrictions on some deductions.
- Limits deductions for losses and restricts interest
deductibility at 30% of gross earning, thus making debt less
attractive.
- Will have a significant impact on both debt funds and buyout
transactions due to the new limitations on interest expenses
deductions. If the interest rate rises sharply in the future, then
investment appetites for these funds may begin to wane.
- A prolonged private equity holding period can have an adverse
impact on the private equity firm.