Most investors have the same goal, they want to enjoy a financially secure retirement at whatever age they choose. That being the case, it stands to reason that your retirement “nest egg” should ideally generate above-market returns, with below-market risk, if possible.
Typically, that includes investing in publicly traded stocks.
But that could soon change as the U.S. wants to make it easier for everyday investors to invest in private companies, including some of the world’s biggest startups. They want to give investors access to companies that have been out of their reach because they haven’t gone public.
For years, the SEC blocked smaller investors’ access to private deals, because they first had to meet income and net-worth requirements in order to participate.
According to US SEC Commission Chairman Jay Clayton:
“The fact that Uber, Airbnb and other larger tech companies are staying private longer has robbed individual investors of the ability to get access to potentially high-return investments, as well as cut off a needed funding source for less-well-known companies that would like to go public. To remedy that, Clayton has proposed loosening regulations, which he says are discouraging companies from going public, but have also limited fraud,” as quoted by Bloomberg.
The SEC Concept Release
In coming months, the US SEC will introduce its “concept release,” which will seek public comment on how to expand access to private stock sales.
According to The Wall Street Journal:
“If more retail investors got access to companies before they launched an initial public offering, the move would create another alternative for companies that already have ample access to private cash…”
However, one of the features of the private market has been the ability to limit hype, note analysts. If the US SEC were to open the private market to everyday investors, that ability could go away and “fraudsters looking to take advantage of limited disclosure requirements are sure to flood in,” warns Bloomberg.
While there are sizable opportunities to be found in the private market, there is risk for significant fraud and loss. In addition, there is no guarantee that the company will go public. In that case, you could lose your total investment.
That’s something to be aware of if the US SEC Commission Chairman gets his way.