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Yeah, this is what happens when institutional investors decide to throw their money into poorly regulated private equity vehicles. If only we had some mechanis

Yeah, this is what happens when institutional investors decide to throw their money into poorly regulated private equity vehicles. If only we had some mechanism whereby companies' shares could be listed somewhere public, and people could buy and sell them to determine what a fair price for these companies would be! Oh, better yet - we could have a regulatory body that could prevent companies from selling the same asset back and forth to themselves to inflate the price. Crazy, right?

collegeburner 4y ago
Oh come on, a lot of good companies stay private bc the SEC makes it a pain in the ass (and expensive) to be public. And it's making it worse with stupid shit like ESG reporting or SOX compliance they just keep adding. And these days you run the risk of some social justice warrior micro fund buying 2 shares going to CALSTRS or whatever and running a proxy fight. I would not want to take a company public these days and I don't see problems with companies staying privately held. PE LPs are all accredited and know what they're doing, they're betting on a greater fool buying for a higher multiple later bc it worked for the past years, multiples kept rising. Blame the fed, blame congress, blame stupid people who somehow got money. Now people complain bc there's a downturn. I don't know how people are unironically painting them as victims.
- lovich 4y ago
  > And these days you run the risk of some social justice warrior micro fund buying 2 shares going to CALSTRS or whatever and running a proxy fight. I would not want to take a company public these days and I don't see problems with companies staying privately held. If you’ve reached the size of being a public company, lawsuits are a Tuesday. If the flavor of the frivolous is driving executives and investors decision making, then it’s a cultural choice. > Oh come on, a lot of good companies stay private bc the SEC makes it a pain in the ass (and expensive) to be public. And it's making it worse with stupid shit like ESG reporting or SOX compliance they just keep adding. It does make it a pain but it also increases the trust investment has in your company to not do things like trade assets between two vehicles you control with no proof that it’s not to your benefit Generally agree that these aren’t victims though. To borrow a term from Eve, it seems like they decide to venture into null sec space and are surprised they could get hurt
  - 1123581321 4y ago
    It used to be more manageable to go public before becoming the size where lawsuits and legal fees mean nothing, is the point.
  - collegeburner 4y ago
    Proxy fights are worse than lawsuits. Lawsuits cost money and waste lawyers time, but proxy fights waste the board and executives time and distract them from running the company. Also if you want more companies to be public than this is a bad argument. Also these deals arent suffering from a "lack of transparency". The LPs know exactly what they're doing, they're literally marketed as continuation funds. You really can't complain about high net worth individuals or institutional investors getting "taken advantage of" like you can with some random guy investing his 401k in the public markets. Smh.
- pm90 4y ago
  SOX compliance is a huge PITA but has driven engineering changes that have made the orgs Ive worked at much more secure. In particular, rules that require code reviews, auditing around production deployments, regular patching and exercising backup/recovery mechanisms have all made the systems Ive worked on operationally resilient. It does depend on what kind of expertise your compliance team has (or the 3rd party tool you might use). But followed in spirit, SOX regulations have probably been a net benefit.
  - blowski 4y ago
    I thought SOX was mostly financial. What you’re saying here sounds more like SOC. are they connected?
    - pm90 4y ago
      You can think of SOX as RFC and SOC2 as an implementation of it. https://www.logicgate.com/blog/a-comparison-of-soc-and-sox-compliance/ https://www.logicgate.com/blog/a-comparison-of-soc-and-sox-c...
      - solar-ice 4y ago
        SOC 2 is the bit that changes how software development is done, and has literally nothing to do with SOX, even according to that article.
      - collegeburner 4y ago
        There is literally 0 requirement to implement SOC2 for SOX. They are not related at all aside from that a lot of organizations do both. I'm kinda curious now where you got this idea?
- RC_ITR 4y ago
  > PE LPs are all accredited and know what they're doing Lol. Who’s accrediting them? 9/10 can’t make a 3-statement that foots.
  - wikfwikf 4y ago
    An accredited investor is one who has a certain amount of wealth, apart from their main residence. The SEC lays down the definition. You need to be an accredited investor to invest, as an individual, in hedge funds, private equity, and some other similar things.
    - deleted 4y ago
      [deleted]
    - RC_ITR 4y ago
      Yeah, hence the joke. Kim Kardashian is an accredited investor.
  - collegeburner 4y ago
    Lmao true for some of the AM guys I've met. But no it's an SEC designation of having a lot of money (so you aren't broke if you lose it) or proven knowledge (new rule so finance professionals who theoretically know what they're doing can invest).
    - deleted 4y ago
      [deleted]
    - nradov 4y ago
      A friend of mine also became an "accredited" investor through the simple expedient of lying on the form. Many financial services companies don't bother to verify investor income and assets.
      - collegeburner 4y ago
        It's not a matter of bothering, the ones that don't do general solicitation or are less than $150mm AUM don't have to actually verify. Which is good because LPs get mad when you ask them for tax returns.
yowlingcat 4y ago
Institutional investors often actually like being able to invest in assets that aren't subject to public market fluctuations based on speculation, sentiment, derivatives, proxy disputes, where any share transactions are strictly controlled and repurchase rights themselves are tightly bartered between various share classes. Ultimately, the kind of wash sale you're talking about only applies when sophisticated accredited investors pump the price and dump to unaccredited unsophisticated investors. Institutional investors must know better, or (to the benefit of other institutions), they don't remain fit enough to be an accredited institutional investor for very long. Regulators lie downstream from, and are often directly captured by this sort of jockeying for power between large institutional investors and their turf wars (SEC/CFTC -> private sector financial services/banking pipeline). So regulation isn't always an effective answer for these kinds of incentive problems.
_uy6i 4y ago
The private markets are very liquid for quality assets, you don’t need to go public for that, and the sec would not prevent these actions, their requirements would be comprehensive disclosure of the conflicts, not prohibition
beambot 4y ago
By rough approximation, it's at least $1M per year in purely excess G&A costs to meet public company regulatory requirements. And then there's the constant management distraction of quarterly earnings song & dances, disclosing key strategic matters that might be better left private, governance requirements, increased surface area for lawsuits, wallstreet manipulations, etc. Being private can make the companies much more nimble -- especially if they actually have rigor & profits rather than requiring perpetual shareholder subsidization of "growth." TLDR: Being public (even absent Sarbanes Oxley) isn't a panacea.
snake_doc 4y ago
You’re completely ignoring the capital markets differences between public and private assets. Companies require capital to operate, capital has a cost, the cost is different depending on which capital market you fundraise from. The size of these markets are different, their demands on returns and time horizons are different. This provides a much better variety of capital choices for companies searching for capital. If only the public equity market existed, the capital market would be very inefficient. This is microeconomics 101, increase choice/variety to most efficiently meet demand without creating deadweight loss.

collegeburner 4y ago

Oh come on, a lot of good companies stay private bc the SEC makes it a pain in the ass (and expensive) to be public. And it's making it worse with stupid shit like ESG reporting or SOX compliance they just keep adding. And these days you run the risk of some social justice warrior micro fund buying 2 shares going to CALSTRS or whatever and running a proxy fight. I would not want to take a company public these days and I don't see problems with companies staying privately held. PE LPs are all accredited and know what they're doing, they're betting on a greater fool buying for a higher multiple later bc it worked for the past years, multiples kept rising. Blame the fed, blame congress, blame stupid people who somehow got money. Now people complain bc there's a downturn. I don't know how people are unironically painting them as victims.

lovich 4y ago
> And these days you run the risk of some social justice warrior micro fund buying 2 shares going to CALSTRS or whatever and running a proxy fight. I would not want to take a company public these days and I don't see problems with companies staying privately held. If you’ve reached the size of being a public company, lawsuits are a Tuesday. If the flavor of the frivolous is driving executives and investors decision making, then it’s a cultural choice. > Oh come on, a lot of good companies stay private bc the SEC makes it a pain in the ass (and expensive) to be public. And it's making it worse with stupid shit like ESG reporting or SOX compliance they just keep adding. It does make it a pain but it also increases the trust investment has in your company to not do things like trade assets between two vehicles you control with no proof that it’s not to your benefit Generally agree that these aren’t victims though. To borrow a term from Eve, it seems like they decide to venture into null sec space and are surprised they could get hurt
- 1123581321 4y ago
  It used to be more manageable to go public before becoming the size where lawsuits and legal fees mean nothing, is the point.
- collegeburner 4y ago
  Proxy fights are worse than lawsuits. Lawsuits cost money and waste lawyers time, but proxy fights waste the board and executives time and distract them from running the company. Also if you want more companies to be public than this is a bad argument. Also these deals arent suffering from a "lack of transparency". The LPs know exactly what they're doing, they're literally marketed as continuation funds. You really can't complain about high net worth individuals or institutional investors getting "taken advantage of" like you can with some random guy investing his 401k in the public markets. Smh.
pm90 4y ago
SOX compliance is a huge PITA but has driven engineering changes that have made the orgs Ive worked at much more secure. In particular, rules that require code reviews, auditing around production deployments, regular patching and exercising backup/recovery mechanisms have all made the systems Ive worked on operationally resilient. It does depend on what kind of expertise your compliance team has (or the 3rd party tool you might use). But followed in spirit, SOX regulations have probably been a net benefit.
- blowski 4y ago
  I thought SOX was mostly financial. What you’re saying here sounds more like SOC. are they connected?
  - pm90 4y ago
    You can think of SOX as RFC and SOC2 as an implementation of it. https://www.logicgate.com/blog/a-comparison-of-soc-and-sox-compliance/ https://www.logicgate.com/blog/a-comparison-of-soc-and-sox-c...
    - solar-ice 4y ago
      SOC 2 is the bit that changes how software development is done, and has literally nothing to do with SOX, even according to that article.
    - collegeburner 4y ago
      There is literally 0 requirement to implement SOC2 for SOX. They are not related at all aside from that a lot of organizations do both. I'm kinda curious now where you got this idea?
RC_ITR 4y ago
> PE LPs are all accredited and know what they're doing Lol. Who’s accrediting them? 9/10 can’t make a 3-statement that foots.
- wikfwikf 4y ago
  An accredited investor is one who has a certain amount of wealth, apart from their main residence. The SEC lays down the definition. You need to be an accredited investor to invest, as an individual, in hedge funds, private equity, and some other similar things.
  - deleted 4y ago
    [deleted]
  - RC_ITR 4y ago
    Yeah, hence the joke. Kim Kardashian is an accredited investor.
- collegeburner 4y ago
  Lmao true for some of the AM guys I've met. But no it's an SEC designation of having a lot of money (so you aren't broke if you lose it) or proven knowledge (new rule so finance professionals who theoretically know what they're doing can invest).
  - deleted 4y ago
    [deleted]
  - nradov 4y ago
    A friend of mine also became an "accredited" investor through the simple expedient of lying on the form. Many financial services companies don't bother to verify investor income and assets.
    - collegeburner 4y ago
      It's not a matter of bothering, the ones that don't do general solicitation or are less than $150mm AUM don't have to actually verify. Which is good because LPs get mad when you ask them for tax returns.

yowlingcat 4y ago

Institutional investors often actually like being able to invest in assets that aren't subject to public market fluctuations based on speculation, sentiment, derivatives, proxy disputes, where any share transactions are strictly controlled and repurchase rights themselves are tightly bartered between various share classes. Ultimately, the kind of wash sale you're talking about only applies when sophisticated accredited investors pump the price and dump to unaccredited unsophisticated investors. Institutional investors must know better, or (to the benefit of other institutions), they don't remain fit enough to be an accredited institutional investor for very long. Regulators lie downstream from, and are often directly captured by this sort of jockeying for power between large institutional investors and their turf wars (SEC/CFTC -> private sector financial services/banking pipeline). So regulation isn't always an effective answer for these kinds of incentive problems.

_uy6i 4y ago

The private markets are very liquid for quality assets, you don’t need to go public for that, and the sec would not prevent these actions, their requirements would be comprehensive disclosure of the conflicts, not prohibition

beambot 4y ago

By rough approximation, it's at least $1M per year in purely excess G&A costs to meet public company regulatory requirements. And then there's the constant management distraction of quarterly earnings song & dances, disclosing key strategic matters that might be better left private, governance requirements, increased surface area for lawsuits, wallstreet manipulations, etc. Being private can make the companies much more nimble -- especially if they actually have rigor & profits rather than requiring perpetual shareholder subsidization of "growth." TLDR: Being public (even absent Sarbanes Oxley) isn't a panacea.

snake_doc 4y ago

You’re completely ignoring the capital markets differences between public and private assets. Companies require capital to operate, capital has a cost, the cost is different depending on which capital market you fundraise from. The size of these markets are different, their demands on returns and time horizons are different. This provides a much better variety of capital choices for companies searching for capital. If only the public equity market existed, the capital market would be very inefficient. This is microeconomics 101, increase choice/variety to most efficiently meet demand without creating deadweight loss.