Rattner vs. private equity solicitation

March 6, 2013, 3:06 AM UTC

FORTUNE — Steve Rattner has been taking some heat for a recent New York Times column that was deeply critical of the JOBS Act. I actually applaud his willingness to take on this sacred cow, although my own take on the legislation is more ambivalent.

Most of the attention has been focused on Rattner’s choice to equate crowd-funding with state lotteries, but I’d like to instead focus on his discussion of how the JOBS Act would allow private equity and hedge funds to advertise their wares. Mainly because that is where he and I do have some significant disagreement.

Rattner writes:

For the first time, private equity and hedge funds will be able to advertise — and thereby separate inexpert individuals from their savings. Putting money in these alternatives is yet another type of investing that Americans shouldn’t try at home. Until now, only a small percentage of Americans who qualified to invest this way (the law requires they have an income of $200,000 per year for an individual or a net worth of $1 million) did so. The possibility that advertising will lure more people to participate does no one any favors. Besides, these days, the most successful private equity and hedge funds can already raise all the capital they can efficiently manage without advertising.

So I’ll wager that most of this new advertising will come from firms that sophisticated institutional investors wouldn’t consider investing in. No wonder that the Securities and Exchange Commission, whose former chairwoman Mary Schapiro opposed the legislation, has been taking its time writing the regulations to implement these provisions.

Two quick points:

  1. 1. I’m hearing that a number of well-known private equity firms plan to launch public advertisements once the bans are lifted. Not just to help with current fundraising efforts, but also to expand their investor pools going forward. There are plenty of high-net-worth individuals and family offices whom successful private equity and hedge funds don’t even know about, and an ad in Barron’s might help facilitate such introductions.
  2. 2. There is a certain irony to this concern being voiced by someone who was allegedly involved in kickbacks to public officials, in exchange for public pension commitments to his private equity funds.

When Rattner writes that Mary Schapiro’s SEC has been “taking its time writing the regulations to implement these provisions,” what he really means is that it has been missing deadlines. And it continues to be ridiculous. Not only because the SEC isn’t entitled to reverse the will of both Congress and the President — the JOBS Act language is quite clear — but also because this rule does nothing to allow those who currently cannot invest in private equity and hedge funds to do so. Instead, it simply clears up the lines of communications for those who already are permitted in the club. It also would allow fund managers to discuss such efforts with journalists, which could lead to more critical reporting of such efforts.

Remember, the current rules are so restrictive that private equity managers can’t even discuss fundraising in front of a paying conference audience of institutional investors. Last week at the SuperReturn International conference in Berlin, PE manager after PE manager gave bland speeches that studiously avoided what many attendees wanted to hear about. Once finished, they then scurried off into an adjoining office building to have such discussions with attendees on a one-on-one basis. Private equity is supposed to be an inefficient market, but not like this…

Sign up for Dan’s daily email newsletter on deals and deal-makers: GetTermSheet.com