SEC Commissioner Crenshaw Flags Risks in Expanding Retail Investor Access to Private Markets

In remarks at the Better Markets Academic Advisory Board Annual Conference, SEC Commissioner Caroline A. Crenshaw cautioned against efforts to expand retail investor access to private markets.

Ms. Crenshaw warned that regulators are steering investors into private markets without adequate safeguards, blurring the long-standing separation between public markets, which require more disclosure, and private markets, which operate with lighter oversight. She raised concerns that that the explosive growth of Regulation D ("Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933") offerings, private placements, and private fund assets may outpace regulatory oversight. Furthermore, she argued against claims of a decline in IPO activity, noting that IPOs have historically ebbed and flowed, and stating that "perhaps these developments should prompt us to revisit the equilibrium between public and private markets."

Ms. Crenshaw also challenged the notion that "the securities laws and our rules are all that’s standing in between [retail investors] and guaranteed wealth," noting that many private investments have underperformed large-cap U.S. stocks "on a one-, three-, and five-year basis." She emphasized that there is also "significant risk that retail investors would get access only to investments that more sophisticated investors have already turned down," leaving retail investors with private investments that (i) have higher fees than traditional retail investments and (ii) pose greater liquidity risks to such investors. In addition, she suggested the push for retail access is being driven less by investor demand than by private firms struggling to raise capital.

Ms. Crenshaw criticized the SEC for weakening oversight just as retail investors are being directed into private markets. She cited the Fifth Circuit’s decision to vacate the SEC’s private fund adviser rules and the Commission’s repeated delays in implementing Form PF amendments meant to monitor systemic risk. She argued that the SEC is ignoring clear warning signs of systemic risk in private markets and concluded by urging adoption of stronger disclosure requirements, clearer valuation standards, and stricter conflict-of-interest rules.