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SEC Invites Comments on Private Securities Exposure for Retail Investors

Morningstar’s John Rekenthaler recently chronicled global illiquidity events at three fund companies that highlight the fallout possible when funds are exposed to highly illiquid assets. Rekenthaler notes that while he is a skeptic of permitting mutual funds to invest more heavily in private securities, there is market and political pressure in favor of these investments. On June 18, the SEC issued a “Concept Release on Harmonization of Securities Offering Exemptions,” seeking public comment on topics related to the current framework for private securities offerings “to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.” The Concept Release included a significant discussion on how retail investors could gain exposure to privately offered securities. Mutual funds and ETFs have liquidity and daily valuation requirements that make it difficult for them to invest significantly in these private offerings. The SEC observed that for retail investors who are not accredited investors, the ability to obtain exposure to exempt offerings through a pooled investment fund is limited to exposure through registered investment companies, such as interval funds, and through BDCs. The Concept Release lists several questions on how the SEC may widen access to private investment opportunities through interval funds, target date funds, and closed-end funds. Public comments on the Concept Release are due by Sept. 24.  

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