The SEC Investor Advisory Committee met today, and one of the topics reviewed was access to alternative assets. More specifically, the fast-growing private securities markets. Private securities in both debt and equity markets have boomed in recent years. Meanwhile, public securities have diminished due to overly aggressive regulations compelling firms to remain private for as long as possible. This has the unfortunate impact of denying smaller investors access to promising firms earlier in their development. This means big money can hoover up much of any gain before a private firm goes public.
While early-stage firms tend to be riskier ventures, denying smaller investors access is not the best approach, especially for more sophisticated individuals. The Committee discussed methods to allow greater access or to “democratize” the asset class—perhaps via funds that can hold a basket of private firms.
At the opening of the meeting, several Commissioners commented on this topic.
Commissioner Hester Peirce stated in prepared remarks:
“Today’s second panel will take up some of the many questions associated with increasing retail investor opportunities to invest in alternative assets. For too long, misguided efforts to shield retail investors from risk have prevented them from directly accessing private market opportunities. Exploring how retail investors can gain diversified exposure to alternative assets with professional advice through existing products, like ETFs, interval funds, BDCs, and closed-end funds is a worthy topic for the IAC.”
Commissioner Mark Uyeda had this to say:
“The panel on the mainstreaming of alternative assets to retail investors is particularly timely. Just last week, the Wall Street Journal reported that, in 2024, private companies have sold more than $6 billion in stock using a tender offer mechanism. By comparison, only $31 billion has been raised by companies in traditional IPOs. In addition, the total number of unicorns – which are private companies with a valuation of $1 billion or more – has increased from 47 to 1,250 over the last decade. With the increasing reporting burdens on public companies, including the politicization of annual meetings through special interest shareholder proposals, it is no surprise that the idea of becoming a public company is now less attractive.
Consistent with its mission to facilitate capital formation and protect investors, it is incumbent upon the Commission to foster innovation as it relates to providing retail investors with access to private markets. The use of registered funds, which are professionally managed by investment advisers subject to a fiduciary duty, is a good start. I look forward to hearing the perspectives of the panelists and Committee members as they tackle this important topic.”
Outgoing SEC Chairman Gary Gensler avoided addressing the topic directly, instead focusing on the investor protection mandate. He said “investor protection promotes trust in our securities markets.” And it does. But more balance is needed. During his tenure at the Commission’s helm, Gensler sought to make it more difficult for retail investors to access private securities, not easier, without much justification.
Gensler did mention the IAC’s work as the “investors advocate.” If this is the case, the IAC will open up private securities markets further because few retail investors will say they want less access, instead or more, especially regarding such an important asset class.
It appears the Committee will provide guidelines for some structure that will open up access. Perhaps the next Chairman will take the recommendations to heart.