What You Need to Know
- Most retail investors currently lack access to private equity, private debt and private real estate investments.
- Private equity, debt and real estate investments often outperform public markets, according to the committee report.
- The committee's recommendations can now be considered by SEC staff and commissioners.
The Securities and Exchange Commission’s Asset Management Advisory Committee has unanimously approved a recommendation to expand retail investor access to private investments.
Most retail investors currently lack access to private equity, private debt and private real estate investments, which, according to the committee’s report, often yield better returns than public markets over periods of three years or more and can add diversification to portfolios.
The report noted, however, “some concern” about the comparison of private equity returns to public equity returns because the internal rate of return cited by private equity managers is limited, and there is evidence that the relative return of private equity is declining due to lower premiums paid for illiquidity, lower interest rates or both. The report was presented at the advisory committee meeting on Monday.
As it stands, private investments are generally limited to wealthy investors deemed accredited investors or qualified investors by the SEC. Accredited investors have $1 million or more in net worth, or more than $200,000 in annual income or hold one of three financial industry licenses — Series 7, Series 65 or Series 82.
A qualified investor has at least $1.2 million in assets under management with an advisor, a net worth above $2.2 million or is an executive officer, director, trustee, general person working with an advisor or has worked at least one year with an advisor.