SEC commish airs worries about private markets

"I’m not sure we need regulation to help facilitate more capital going to unicorns and other large private companies – they seem to be doing fine on their own,” said SEC commissioner Caroline Crenshaw.

The SEC’s push to “harmonize” private and public markets has led to significantly more money flooding into private funds, prompting concern from at least one SEC commissioner that the regulator may need to do more to protect private fund investors.

“My ever-present fear is that the capital formation rules that we put in place pay lip-service to the needs of everyday American entrepreneurs, but really serve another master,” SEC commissioner Caroline Crenshaw said in a speech at the University of Chicago on April 14. “And because of the less stringent disclosure requirements in private markets, they do that at the expense of actual, substantive, meaningful disclosure to investors, stakeholders and regulators.”

Crenshaw is still the newest commissioner. She arrived at her worries about private-public harmonization early, voting against then-chairman Jay Clayton’s harmonization rules in March 2020. She said she was worried that regulators were putting their fingers on scales so that “the opaque private markets” could grow “at the expense of better-lit public markets.”

“The private markets are growing at record rates,” Crenshaw said in her speech. “This is, of course, a trend that has been ongoing for some time. Since 2009, fundraising in the private markets has outpaced fundraising in the public markets.”

She bolstered her point with some stunning numbers:

  • Fundraising in global private markets reached a record high of nearly $1.2 trillion last year, an increase of nearly 20 percent over 2020, and a threefold increase over the past decade.
  • Private assets under management reached an all-time high of $9.8 trillion as of July of this past year, an increase of about 33 percent from $7.4 trillion the year before.
  • US private fund assets have increased 70 percent in just five years.

Ordinary people

A lot of ordinary Americans are caught up in the fever. “For example, although traditionally public investors invested in 5.3 percent of venture deals by count, they made up over 36 percent of venture deal value in 2020,” Crenshaw said. “The median venture round without crossover public investors hovered below $3 million; the deal size with crossover investors was over $60 million.”

In her assessment, “the private market boom isn’t necessarily a boon to our small and mid-sized businesses seeking capital. And, to be frank, I’m not sure we need regulation to help facilitate more capital going to unicorns and other large private companies – they seem to be doing fine on their own.”

The harmonization efforts have led to some absurd results, Crenshaw claimed. You “can have two firms that are virtually identical in every respect, including shareholder base, product, business models, employee counts, operations, enterprise value, and so on,” but those two firms “can have completely different regulatory and disclosure obligations to investors and stakeholders.”

Some critics have argued that the SEC ought to expand the definition of shareholder of record under Sec. 12(g) of Reg D. Count every person who puts money into a fund, directly or indirectly, as a shareholder, advocates say, and you’ll force most funds into the public disclosure regime. Crenshaw didn’t come out in support of the idea, but said she’d “like to hear from the academic community” about it.

“Finally, if you can’t give me answers to my questions – because there are insufficient data or for other reasons – can you give me questions that you can answer? Using randomized trials, natural experiments, event studies, and difference in difference – what do the tools allow you to conclude with confidence about the right regulatory framework.”

Bill Myers covers private fund policy from Washington, DC. He can be reached at