In the age of the internet, no investment management firm can expect to get very far without its own website. The website is a virtual storefront: a place to build brand identity, communicate with clients and market to them, all rolled into one. But it also exposes the fund manager to significant legal risks. Here are six key things that a GP should bear in mind when developing its website:
The manager should take care when publishing fund information on its website.
Under UK law, any information communicated in the course of business which invites or induces a person to engage in investment activity is, legally speaking, a “financial promotion”. Financial promotions are subject to a complex regime of restrictions relating to who can make them, who can receive them, and their content.
Broadly speaking, a financial promotion must be made (or approved) by a person who is authorised by the Financial Conduct Authority (FCA) or otherwise must be covered by an exemption from the basic restrictions on financial promotion, such as where the promotion is limited to suitably experienced investors.
Websites are covered by the financial promotion regime in the same fashion as any other medium of communication, but are often more difficult for the manager to control, because the web is open to anyone in the world with an internet connection. In their enthusiasm to get to market, some new GPs are tempted to go “live” with a full website prior to becoming FCA-approved in their own right or securing appointed representative status (in other words, entering into a relationship with an authorised person in order to piggyback off of their regulatory permissions). The safer option would be to start with a “soft” launch for the website, confining it to basic information like the corporate name, logo, address and mission statement, with the promise of “more information soon” once the firm has the necessary authorisation in place.
This should not be taken lightly. Violation of the financial promotion rules can lead to serious financial and reputational consequences, including potential criminal liability, render contracts unenforceable and put the manager at risk of having to return investors’ money and make good their losses.
Private funds are typically only able to solicit and accept capital from professional or high net worth investors, and then only in strict compliance with the laws of the manager’s home country and the country where the relevant investor is based. A private fund is prohibited from general solicitation or public advertising.
Accordingly, fund and capital-raising information posted on a GP’s website should be walled off from public view. That includes the names of specific funds that the manager offers, investor presentations, fund subscription documents, PPMs, fund performance data and any other materials that are typically provided to potential investors in connection with their fund due diligence. GPs should ensure that comprehensive legal disclaimers are featured prominently on the website and on promotional documents, require users to fill in a web form declaring their investor status, and use passwords and filters to ensure that access to fundraising materials is restricted only to qualified investors.
The regulations on investment communications and fund marketing rules differ from place to place, but most countries do have rules in place. Before making the password-protected sections of its website available in another country, the GP should ensure that it has obtained local legal and regulatory advice on what particular funds and to whom it is eligible to market in that country.
Putting in place effective controls of this sort will help a GP to demonstrate that a website communication was only being directed at specific categories of investor who benefit from a relevant regulatory exemption, e.g. investment professionals, sophisticated investors, and high net worth individuals.
Not all of the information on the firm’s website will necessarily qualify as a financial promotion that needs to be restricted. General information about the firm, the purpose of which is to inform or educate, can normally be left on the ‘public’ pages of the website, provided that it is carefully shorn of any content that could reasonably be considered ‘promotional’. One rule of thumb is to focus on the fund manager’s approach to investing in portfolio companies or assets, while omitting any mention of the specific funds that it manages or is marketing.
There is a very human tendency to put one’s best foot forward and cast matters in the most positive light. But UK law requires any financial promotion, at a minimum, to be clear, fair and not misleading, and it is sound business practice to apply this standard generally to everything that the GP puts out, not just statements or materials that technically qualify as financial promotions.
The management and website teams should work with the firm’s legal and financial advisers to ensure that the website contents (including information quoting or sourced from third parties) are verified for accuracy and completeness and kept under continuing editorial review. Common errors, particularly by new managers, include referring to a fund as having been established when it is still in the development stage; or citing the track records of members of the investment team without clarifying which parts are historical and do not relate to the manager or fund in question.
No distinction should be drawn between information on the ‘official’ portion of the firm’s website and the firm’s social media footprint – Facebook, LinkedIn, Twitter, image and video sharing platforms, even blogs maintained by members of the GP team. The firm will need to maintain the same degree of rigorous oversight in all cases.
The FCA recognises that communication by social media (whether on the website, Facebook, LinkedIn, Twitter, blogs or image and video sharing platforms) is increasingly important as a tool for engaging with the public and its use is only likely to grow. The FCA has published guidance on its supervisory approach to financial promotions in social media – you can view this here. The guidance covers areas of regulatory scrutiny and sets out some useful solutions for firms to consider. It recommends examining each social media posting individually to ensure that it complies with the relevant rules, incorporating appropriate risk warnings and disclaimers into social media posts, and putting in place a system that enables a senior competent employee to sign off on all digital communications. Firms should also remember that marketing on an unsolicited basis via social media is restricted by law in the same way as any other medium of communication.
The website is the face a company presents to its investors and the world, so it helps to put time and effort into it. Fast loading speeds, attractive visual aesthetics, easy scalability for screens large and small – these are all increasingly the norm in the market. GPs should also use the password-protected sections of the website as a communication channel with their funds’ investors, which may include the regular provision of performance data and customisable reports for financial analysis purposes. And there are a lot of legally protective features that can now be automated, e.g. date and time stamps, or the insertion of legal disclaimers on printable pages.
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