PE HUB Wire Highlights, 8.27.19


Photo of Luisa Beltran, PE HUB Senior Editor, courtesy of Buyouts Insider.

Marathon seeks $750 mln for specialty finance fund; Foundations see strong returns from PE; Should retail investors be allowed to invest in PE?

Morning, Hubsters. Who watched the Williams-Sharapova match yesterday? It was over in flash.

A few months ago, PEI Media acquired Buyouts. Now I’m not going to discuss how well the merger is going (pretty well, it seems), but one thing I had to do was switch over my 401(k). I was a little annoyed that my investment options did not include any PE funds. As a business journalist, I’m not allowed to engage in trading, but I can invest in mutual funds. I just couldn’t find one that focuses on PE. This struck me as unfair. (I’m not saying that I would invest in PE, but I want the choice.)

Hal Scott, professor emeritus at Harvard Law School, agrees with me. Jay ClaytonSEC chairman, is currently considering easing restrictions designed to protect retail investors from being burnt by risky strategies, Hall said in a column for the Financial Times. The regulator put out a report that explores ways to safely expand retail investor and retiree access to PE and venture capital. The comment period expires next month, said Hall, who chairs the Committee on Capital Markets Regulation.

Scott believes that the SEC should allow retail investors to invest in fund-of-funds, according to his column. These funds and their advisers are registered with the SEC and generally listed on exchanges, Hall said. These public closed-ended funds are subject to mandatory disclosure requirements about the funds they invest in and the fees charged, which should address transparency concerns, he said. The managers who run these funds are sophisticated investors who have a legal duty to pick funds that are good for retail investors, Hall reasons.

“It is time to give middle-class Americans the same investment opportunities as institutions and the wealthiest 2 percent,” Hall said in his column.

I agree with Hall and do think retail investors should have this choice but with one caveat. Investors need to really understand what is private equity. This hurdle is hard, hubsters. I’ve tried to explain PE to my non-business friends and, for the most part, my tutelage goes over their heads. They just don’t understand the concept of a fund and how debt is loaded onto companies (but not the PE firm itself). People need to be educated.

Hubsters, do you think retail investors can grasp the intricacies of private equity? Are fund-of-funds a good choice for them? What dangers does it raise? Email me at lbeltran@buyoutsinsider.com

With that, we have yet another story on how well investors do with their PE allocations. Private and community foundations saw gains in the private equity asset class, despite overall investment returns hitting the lowest level in 10 years, Teddy Grant is reporting. Private equity returns were the best performing asset class for community foundations, returning 10.6 percent, said the report, The 2018 Council on Foundations-Common fund Study of Investment of Endowments for Private and Community FoundationsSee the story here.

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