4 ms·

Can we now subject large "private" firms to the same scrutiny that "public" have to obey? I always thought it was ridiculous that you could call a trillion dol

Can we now subject large "private" firms to the same scrutiny that "public" have to obey? I always thought it was ridiculous that you could call a trillion dollar company with millions of shareholder, "private." From the sounds of it, this ruling handwaves away the inherent risk of investing in a company whose finances you have no visibility into by claiming that putting it into a diversified private fund is the same as a diversified public fund. Which is fine, but they should be subject to the same reporting requirements as public companies. These regulations didn't appear out of thin air. The business world is full of evil people looking to rob everyday investors. See: Enron.

airstrike 6y ago
I believe the assumption is the fund manager is the kind of investor that will have the ability and resources to do proper due diligence before investing, contrary to the case of public companies that can sell stock to the average Joe
- pottertheotter 6y ago
  But now the issue is due diligence of the GP, the fund manager. I think that's what OP is talking about. PE firms don't have the same level of disclosure requirements as public companies (with the exception of those that are now public companies), and you need to research a fund just as you would research a stock. Fund investors are usually family offices, endowments, foundations, fund of funds, secondaries funds, etc., and they all do a huge amount of due diligence on prospective fund investments. It's just as much work to research funds as it is to research public equities. For reference, I have been an investment professional at both a PE firm and a hedge fund.
  - airstrike 6y ago
    But similarly, to my knowledge only accredited investors may invest in PEs / HFs, and shares in those funds are special kinds of securities that differ significantly from those covered by SEC / blue-sky laws and therefore are not subject to the same disclosure requirements. It's not in anyone's interest to treat these different types of investments as if they were similar. I'm not in PE per se, but would think investment in one is through an investment contract which is an exempt security
    - pottertheotter 6y ago
      Totally agree. Just if they are no longer for only accredited investors, there should be increased disclosure
SpicyLemonZest 6y ago
Private firms with more than $10 million in assets and more than 2000 investors (excluding employees) are already subjected to the same scrutiny as public firms have to obey. (The complication here, of course, is that a retirement fund may be a single investor for legal purposes even if it's managing many people's assets.)
- vonmoltke 6y ago
  > more than 2000 investors (excluding employees) I don't think employees are excluded from this.
  - SpicyLemonZest 6y ago
    They're excluded if, as is usually true, they only hold shares issued under a compensation plan. (https://www.sec.gov/smallbusiness/goingpublic/exchangeactreporting https://www.sec.gov/smallbusiness/goingpublic/exchangeactrep...)

airstrike 6y ago

I believe the assumption is the fund manager is the kind of investor that will have the ability and resources to do proper due diligence before investing, contrary to the case of public companies that can sell stock to the average Joe

pottertheotter 6y ago
But now the issue is due diligence of the GP, the fund manager. I think that's what OP is talking about. PE firms don't have the same level of disclosure requirements as public companies (with the exception of those that are now public companies), and you need to research a fund just as you would research a stock. Fund investors are usually family offices, endowments, foundations, fund of funds, secondaries funds, etc., and they all do a huge amount of due diligence on prospective fund investments. It's just as much work to research funds as it is to research public equities. For reference, I have been an investment professional at both a PE firm and a hedge fund.
- airstrike 6y ago
  But similarly, to my knowledge only accredited investors may invest in PEs / HFs, and shares in those funds are special kinds of securities that differ significantly from those covered by SEC / blue-sky laws and therefore are not subject to the same disclosure requirements. It's not in anyone's interest to treat these different types of investments as if they were similar. I'm not in PE per se, but would think investment in one is through an investment contract which is an exempt security
  - pottertheotter 6y ago
    Totally agree. Just if they are no longer for only accredited investors, there should be increased disclosure

SpicyLemonZest 6y ago

Private firms with more than $10 million in assets and more than 2000 investors (excluding employees) are already subjected to the same scrutiny as public firms have to obey. (The complication here, of course, is that a retirement fund may be a single investor for legal purposes even if it's managing many people's assets.)

vonmoltke 6y ago
> more than 2000 investors (excluding employees) I don't think employees are excluded from this.
- SpicyLemonZest 6y ago
  They're excluded if, as is usually true, they only hold shares issued under a compensation plan. (https://www.sec.gov/smallbusiness/goingpublic/exchangeactreporting https://www.sec.gov/smallbusiness/goingpublic/exchangeactrep...)