Let Them Ride: Remarks at the Meeting of the SEC Investor Advisory Committee

Thank you, Brian [Schorr]. Good morning and welcome to all our Committee members, particularly our four newest IAC members: Jim, Rodney, John, and Sergio.[1] I am grateful that you have agreed to lend your talents to the Committee.

I am looking forward to today's panel discussion on foreign private issuers in U.S. capital markets. Prompted by the Commission's recent Concept Release on Foreign Private Issuer ("FPI") Eligibility,[2] the panel will help us discern whether a regulatory response to changes in the composition of FPIs is warranted. The SEC has afforded accommodations to FPIs based on an understanding that these companies are subject to meaningful regulation and disclosure obligations in their home jurisdictions.[3] I would appreciate hearing your thoughts whether FPI disclosure is adequate and, if not, what missing information prevents investors from making informed investment decisions. Thank you to today's panelists for your participation in what I expect will be an excellent discussion that will supplement the comment file on the Concept Release.[4] Particular gratitude goes to our participants from London: Ashley Alder, Chair of the Board of the UK Financial Conduct Authority ("FCA"), Helen Boyd, Director of Market Oversight at the FCA, and John Horsefield-Bradbury of Sullivan and Cromwell.

Perhaps our London participants would have preferred to join us earlier this month when their city was beset by a tube strike. The photos of streets jammed with cars, buses, pedestrians, and masses of "strikelysts": stressed-out, suited, wobbly commuters on bikes for the first time in years evoked sympathy in this city, which also relies heavily on public transportation.

Some people, when they think of retail investors in private markets, seem to see images of unsteady, unpracticed bikers careening down streets full of obstacles and danger. These people think training wheels and a firm parental hand are necessary to stabilize and, when appropriate, stop retail investors. That image is at odds with the picture I have after hearing from scores of retail investors who want to participate in the private markets. These people are smart, thoughtful, and educated-often self-educated. They understand that investing in private markets comes with unique risks, limited transparency, unpredictable returns, and limitations on liquidity. But they want to have the freedom to invest in the assets and markets they choose, and they resent the fact that private markets are the exclusive reserve of the wealthy. Their frustration has only grown with the expansion of the private markets.

The Committee's consideration of draft recommendations regarding retail investor access to private market assets is, therefore, timely.[5] The draft correctly identifies the need for "a recalibration of the existing regulatory framework, which was designed for a world in which the public markets encompassed the vast majority of all investment opportunities."[6] The draft focuses on securing access to the private markets for retail investors through registered funds, and recommends that any direct access be accompanied by limitations and enhanced requirements. Thank you for the time and thought that went into the preparation of the draft recommendations, and I look forward to your discussion at today's meeting. I have several questions for your consideration during this discussion:

1. One draft recommendation would have the Commission require that funds disclose additional information to retail investors about how portfolio assets are valued.[7] Given recent efforts to streamline information to make fund investors more likely to engage with it, would the disclosure of additional highly technical information regarding valuation be useful to retail investors in funds?
2. Another draft recommendation would have the Commission "work with FINRA and state securities regulators to provide guidelines on when investments in private market assets are in an investor's best interest."[8] Would producing such guidelines be an appropriate role for regulators? Wouldn't it be better to leave determinations of when an investment is in the best interest of a particular investor to the investor and her investment professional, who is already subject to Reg BI or the Investment Advisers Act?
3. With respect to expanding retail investors' access to private assets in direct ways, please think through consequences of increasing Regulation D offering costs by requiring issuers to adhere to more onerous disclosure requirements. Would issuers be dissuaded from relying on Regulation D altogether and move toward 4(a)(2) offerings? Would small issuers raising little be functionally barred from using Regulation D?
4. The draft cautions against "going from 'no access' to 'full access'" to the private markets, and would both "[p]lace prudential limits on the amount that can be invested by retail investors who do not meet sophistication or wealth criteria and index the existing income and wealth thresholds for inflation on going-forward basis."[9] Though investment caps are an option that I and others have mentioned, my preferred approach remains full access for all investors to the private markets. Even were my preferred approach to become law, public company investments would likely to continue to dominate retail investor portfolios, and most retail investors would likely continue to prefer registered funds. As I mentioned, however, many retail investors I encounter want the freedom to choose for themselves how much exposure they want to the private markets. How are these Americans' interests reflected in your draft recommendation?

Thank you again for your willingness to dedicate so much of your time to the Investor Advisory Committee. Thank you also to Cristina Martin-Firvida, Marc Sharma, Adam Moore, and Andrew Sporkin for their work with the Committee.