Capital Formation–Have You Heard...?
SEC Corporation Finance Director Bill Hinman had a few interesting things to say at an August 2019 meeting of the SEC Small Business Capital Formation Advisory Committee:
An estimated $2.9 trillion was raised through private placements in 2018, compared to “only” $1.4 trillion raised through SEC-registered offerings.
The SEC is in the process of harmonizing its rules around private fundraising, evidenced in part by the June 2019 concept release requesting comments on private offering rule reform.
He anticipates that the Corp Fin Staff will begin this effort with an update to the “accredited investor” definition, which is on the Staff’s regulatory agenda for late in 2019. The current definition is largely unchanged since 1982, while fundraising strategies and information dissemination methods have changed dramatically during that period.
The Staff has invited collaboration from the Investment Management Division in considering how smaller investors might participate through investment vehicles to have more access to private investment opportunities.
Another Staffer reiterated some of the big-picture matters addressed in the June concept release: Is it appropriate to expand the universe of accredited investors or find other ways to allow currently non-accredited investors to participate in more exempt offerings? Should the rules consider something other than just the wealth of potential investors in determining their eligibility? Should the current financial thresholds be revised? Should the rules consider different measures of sophistication, investment experience or other tests?
It’s safe to say that final rules in this area are still some distance off on the horizon. Political and economic considerations also tend to change the SEC’s rulemaking priorities and the way in which it balances investor protection against increased access to capital and investment opportunities. Still, it is clear that the topic is a high priority for the SEC as it endeavors to respond to calls for regulatory modernization coming from companies seeking capital and from the investment community alike.