FINRA Proposes to Allow Performance Projections in Certain Fund Offerings
FINRA proposed rule amendments to allow members to project the performance of, or provide a targeted return regarding, security or asset allocations.
In a filing with the SEC, FINRA proposed amendments to FINRA Rule 2210 ("Communications with the Public") which currently prohibits projections of performance or targeted returns in member communications, with certain exceptions. FINRA stated that the amendments would allow projections for investment strategies in either institutional communication or communications to be distributed solely to qualified purchasers that make recommendations on specified non-public offerings. FINRA said the amendments are subject to stringent conditions to ensure such projections "are carefully derived from a sound basis."
Comments on the rule proposal must be submitted within 21 days following publication in the Federal Register.
Commentary
This is a significant proposal that will permit broker-dealers acting as placement agents in offerings of private funds to QPs under Section 3(c)(7) of the Investment Company Act to include projections and targets in fund marketing materials. This represents a significant liberalization of the current regime which prohibits investment projections in broker-dealer communications except in the very limited circumstances, and prohibits target returns in communications to non-“institutional investors.”
We will be producing a more fulsome memorandum shortly.