The SEC’s Investment Advisory Committee last week gave limited support to the SEC’s effort to give retail investors more direct access to private-market assets through mutual funds and ETFs.
During its most recent meeting on Sept. 18 the committee voted to approve a statement saying the committee believes the safest way for retail investors to access private-market assets is through registered funds, “which allow retail investors to invest in broadly diversified funds that contain private market assets, often alongside public market assets,” according to a statement the committee voted to approve during the meeting.
Registered funds were developed specifically as a way for retail investors to take advantage of investment opportunities through registered funds that limit the risks involved, the statement said.
The committee did not take a position on other, more direct ways retail investors could access private markets, but did recommend that changes such as the redefinition of what constitutes a Reg D approved investor is a reliable way to protect the interests of investors.
The committee recommended that the SEC consider additional safeguards or guardrails for retail investors making private-market investments through unregistered or exempt offerings due to the greater chance that they may not fully understand the risk involved, especially because many retail investors “do not engage with traditional disclosures.”
“There is a difference between investors losing money due to an affirmative choice to take excessive risk and a loss due to a failure to understand the features and mechanics of funds invested in illiquid private market assets,” the statement read.
The committee acknowledged being split on how enthusiastically to embrace retail access to private funds, but acknowledged that both those who support and those who oppose the measure believed the SEC should consider the establishment of greater investor protection guidelines as it moves ahead.
“The committee found that panelists from both perspectives acknowledged that information asymmetries, illiquidity, valuation, reduced regulatory oversight, fraud, and loss are all risks that will need to be managed if the Commission expands retail investor access to the private market, directly or indirectly,” the statement read.
