In his first major speech as Chairman of the Securities and Exchange Commission, Paul S. Atkins said this morning he will be directing staff to examine expanding private markets access for retail investors.
At the SEC Speaks conference in Washington D.C., Atkins focused his prepared remarks on innovation—and how the Commission should not fear it, but rather embrace and champion it.
“Financial innovation sometimes means getting out of the way of capital formation and allowing all investors to gain the benefits of our robust markets,” Atkins said, adding that since 2002, the SEC staff has taken the position that closed-end funds investing 15% or more of their assets in private funds should impose a minimum initial investment requirement of $25,000 and restrict sales to investors that satisfy the accredited investor standard.
“As a result, many retail investors have missed out on opportunities to invest in closed-end funds that invest in private investment funds, like hedge funds and private equity funds,” he continued.
Atkins noted that much has changed since 2002, including the growth of private markets and the increased oversight and enhanced reporting by both private fund advisers and registered funds. In the last 10 years alone, he said private fund assets have almost tripled from $11.6 trillion to $30.9 trillion.
“Allowing this option could increase investment opportunities for retail investors seeking to diversify their investment allocation in line with their investment time horizon and risk tolerance.”
SEC Chair Paul Atkins
“Allowing this option could increase investment opportunities for retail investors seeking to diversify their investment allocation in line with their investment time horizon and risk tolerance,” Atkins said. “With this in mind, I intend to have the Commission address this situation and reconsider this 23-year-old practice concerning investments by closed-end funds in private funds.”
He said that this “common-sense approach will give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds.”
Atkins concluded his comments regarding investing in private funds by saying the SEC will consider and resolve important disclosure issues for these products, particularly for those that trade on exchanges, including conflicts of interest, illiquidity, and fees.
“As I begin my tenure as Chairman, I can tell you that we are getting back to our roots of promoting, rather than stifling, innovation. The markets innovate, and the SEC should not be in the business of telling them to stand still,” Atkins said. “It is a new day at the SEC, and I look forward to what we are going to be able to accomplish for investors and the markets.”
ICI encourages SEC to lift barriers
The Investment Company Institute, for one, has expressed that it is looking forward to continuing to work with the SEC and other agencies to expand access to private markets and to ensure retail investors aren’t left out of the next era of capital growth.
“This is one of the goals we think should happen: allowing Americans, through their retirement accounts, to have access to private assets,” ICI President and CEO Eric Pan said during a recent Bloomberg Television interview.
During last month’s ICI Leadership Summit, Pan spoke out about the need to democratize access to private markets, and said the SEC could help by lifting those informal barriers that have kept everyday investors locked out of one of the fastest-growing areas of capital markets.
“We’re urging the SEC to lift its 15% limit on alternative investments by retail-facing closed-end funds,” Pan said. “This policy will allow fund providers to offer new products and tailor them to investors who want much more diversification and access to private markets.”
Pan noted that doing so isn’t a “heavy lift” for the SEC, as the 15% limit on private funds is simply an informal position taken by the SEC staff. “This fact alone shows that regulators never intended the limit to be permanent, and since markets have changed, the restrictions should change for the sake of investors. The sooner the better.”
Momentum has been building this year to expand access to private markets to retirement investors. Just last week, Empower announced it will begin offering private markets investments within defined contribution retirement plans.
In his annual letter to shareholders released on March 31, BlackRock CEO Laurence Fink emphasized the importance of expanding access to private equity for everyday investors, including those saving in 401(k) plans.
Earlier this month, T. Rowe Price Chair, CEO and President Rob Sharps said it’s only a matter of time until private market alternatives gain access to defined contribution plans—and if research indicates it would result in better outcomes for DC plan participants, that T. Rowe Price will offer it.
SEE ALSO:
• Empower Offering Private Investments in DC Plans
• Private Equity in 401(k)s ‘Will Happen’ says T. Rowe Price’s Rob Sharps
• BlackRock’s Fink: Democratize Investing by Expanding Access to Private Markets
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.