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SEC wants to let retail investors in on private companies

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jay clayton
Securities and Exchange
Commission Chair Jay Clayton

Chip
Somodevilla/Getty Images



  • The US Securities and Exchange Commission is mulling
    options to let retail investors in on private-company
    fundraising,
    the agency’s chief told the Wall Street
    Journal. 
  • Main Street investors are largely excluded from private
    fundraising for companies like SpaceX, Uber, and Airbnb because
    of regulations.

Facing a dwindling number of publicly traded companies, the US
Securities and Exchange Commission is exploring ways to let
retail investors get a stake in high-flying private companies,

the agency’s head said in an interview with the Wall Street
Journal published Thursday.

“The private markets are awash in capital these days. The
question is, who is participating?” Jay Clayton, chairman of the
US’ top stock regulator, told the paper at an education event in
Nashville.

Some of the world’s most valuable and talked about companies —
the Ubers, Airbnbs, SpaceXs, and WeWorks — have raised hundreds
of millions of dollars through private deals which result in
valuations in the billions. But because many never, or have yet
to, go public on a stock exchange, retail investors largely miss
out on any opportunity to invest in them.

A
2018 McKinsey report
 found that $448 billion was raised
in private US markets in 2017 — a 15% increase from the previous
year. What’s more, 91% of limited partners they surveyed said
private markets generated better returns than public assets.

The agency plans to release more specifics in what’s called a
“concept release” in coming months, but says details are still
fluid pending feedback from the public.

“I think you could move pretty quickly on this kind of thing,”
Clayton told the Journal.

Of course, many secretive private companies like their reticent
statuses. Elon Musk sent shockwaves through financial markets
earlier this month when the billionaire, who has
long bemoaned the quarterly reporting and disclosure requirements
of being public
, mulled taking Tesla private.

Donald Trump also recently voiced his support for lessening the
transparency burden put on public companies, tweeting that he would ask regulators to study
the feasibility of six-month reporting in order to “allow greater
flexibility & save money.”

Currently, much private investment is limited to so-called
accredited investors, which the SEC defines as those individuals
with a net-worth of $1 million or a two-year trailing annual
income of $200,000 (or $300,000 for couples.)



Read the full Wall Street Journal interview with Jay Clayton
here.

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