SEC Panel Says Regular Investors Should Have Access to Private Equity

Six years ago, the Securities and Exchange Commission focused on commercial real estate private equity and what it saw as a lack of disclosure on deals between PE funds and their business partners. Today, the climate is changing, at least regarding who gets to invest.

Even as CRE will feel impacts from soon-to-come SEC climate disclosure regulations, an advisory panel says the agency should allow ordinary investors to put money into private equity, reported the Wall Street Journal.

The Asset Management Advisory Committee approved a report that said the SEC “should  consider allowing so-called retail investors access to a wider range of private investments.” The reasons are supply and demand. There’s “a more concentrated supply of public equity investment choices,” meaning a harder and more expensive route for most people who are asking for more investment choices.

Traditionally, private equity and other types of non-public market outlets have been available only to institutional and corporate investments as well as accredited investors: individuals with high minimum net worth that have a presumption of greater financial sophistication.

But the SEC has been on a path to open options for retail investors. In 2020, Dalia Blass, director of the investment management division at the SEC, said “main street investors had been left ‘on the outside looking in’ because defined contribution pension plans [like 401(k)s] did not provide access to private investments such as private equity, hedge funds and real estate,” according to a Financial Times report.

As the Wall Street Journal notes, the Asset Management Advisory Committee comprises “representatives of asset-management firms—including private-markets investors—public-pension plans, accounting and consulting firms, and other types of institutions.”

It’s unclear how this might affect commercial real estate. 

“There is already a lot of dry powder in the real estate space and this will only increase that amount, leading to additional chasing of yield, downward pressure on returns, and style drift,” Josh Wilcox of FTI Consulting tells GlobeSt.com. He also points out that real estate is “already a more illiquid and opaque asset class” than retail investors are used to, and more money could increase the risk.

Hameer Vaid, a senior director with Alvarez & Marsal’s private equity performance improvement group, thinks that retail investors can already participate in these markets. “REIT formations across debt and equity structures have been on the rise over the past decade providing significant opportunities for retail investors to leverage real estate investing while keeping risk levels low,” he says.

There is also the development of fractional ownership, including the use of crypto technology, that could, over time, allow more people to take part in returns on significant properties, providing the choices that the SEC report says people want.