SEC Division of Investment Management ("Division") Director Dalia Blass said the Division will be making recommendations on outstanding proposals concerning (i) fund of funds arrangements, (ii) funds' use of derivatives, (iii) fund valuation practices and (iv) investment adviser solicitation and advertising. She also highlighted initiatives to enhance public access to private markets.

In a speech before the PLI Investment Management Institute, Ms. Blass first described fund liquidity and operational challenges presented by the pandemic. She called for a thorough analysis of (i) market data and (i) the short- and long-term effects of fiscal and monetary responses to the pandemic before considering policy changes on fund liquidity requirements or the further use of technology for shareholder communications and for corporate meetings. She noted that the Division was working on how to make disclosure more accessible to Main Street investors, and in particular, on a recommendation for a streamlined shareholder report.

Director Blass also emphasized the importance of improving public access to private markets. She highlighted two structures that should be explored: target date funds and closed-end funds of private funds which could "provide convenient, professionally managed means for Main Street investors to invest in these markets." She suggested looking at:

  • registered target-date funds, which are open-end funds, but are intended for longer-term financial goals; these funds could be used "as a way to diversify risk and potentially enhance portfolio returns." Private investments "would be capped to 15% of the fund's portfolio."
  • closed-end funds that do not offer daily redemptions and, as a result, lead to more "substantial holdings in longer-term, illiquid private investments;" these funds do not require the risk management of liquidity and daily valuation.

Commentary

If retail investors are to be given access to private investments, the only route to do that in any significant way is by using SEC-registered investment companies or business development companies as a conduit. Ms. Blass' initiatives are on the right track and should be further developed.

Primary Sources

  1. SEC Speech, Dalia Blass: PLI Investment Management Institute

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