SEC Division of Investment Management Hosts Private Markets Roundtable

On Wednesday, March 4 the Securities and Exchange Commission (SEC) Division of Investment Management held a “Private Markets Roundtable,” which included expert panelists from accounting firms, law firms, and investment management firms. The program consisted of two distinct panels, the first panel covered the differences between public assets and private assets including valuation, liquidity, and education on these differences for investors. The second panel covered regulatory, valuation and governance issues as private market investments enter more retail-focused products. In his opening remarks, SEC Chairman Paul Atkins noted, “at the SEC, we are focused on what we call the ‘responsible retailization’ of post-tax, pre-retirement dollars for investors—embracing growth and innovation across all asset classes while protecting investors through guardrails that guide proper investment into these private assets.”

Notable takeaways included an emphasis during the first panel on potential valuation challenges with private assets and the importance of sound policies and procedures. The group noted that skepticism is healthy, but markets have been evolving to this point over the course of decades. Certain investment managers have built products that function to bridge the gap for investors. In addition, most panelists agreed that private assets are meant to be a longer-term investment.

The second panel also discussed valuation but in the context of fund governance and specific regulatory requirements under Rule 2a-5. Panelists noted the importance of getting valuations correct and acknowledged challenges in the private asset space due to the potential illiquidity of certain assets and fewer observable measures. Pete Driscoll, a partner at PWC noted however that the growth in data is, in many respects, a positive development for valuation and for investors.

The second panel also discussed the rise in interval funds, with one panelist noting the wrapper was designed to accommodate less liquid assets within the framework of the Investment Company Act. Bryan Morris, a partner at Deloitte stated that the transition for investment managers from valuing public assets to valuing private assets will require operational changes including better infrastructure and judgement determinations. He noted that, in particular, increased valuation frequency requires enhanced processes, documentation, and oversight to support defensible, repeatable valuation determinations.

Click here to view the archived video of the Roundtable.

Click here to view SEC Chair Paul Atkins’ opening remarks.