Buyer beware? Wall Street offers private markets to the masses.

Politico

6 hours ago

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QUICK FIX
Wall Street's push to open up private markets to everyday investors is running into resistance. Just don't tell President Donald Trump's administration and allies.
Policymakers across Capitol Hill, at the Securities and Exchange Commission and the Labor Department are laying the groundwork for a major overhaul of the vast and opaque private markets that help fuel the global economy. Their goal: to make it easier for ordinary investors to put their money into everything from privately held startups to real estate funds.
The private markets — long hailed as a high-risk, high-reward alternative to more mainstream investments like those found on U.S. stock exchanges — remain largely out of reach for most investors because of regulatory barriers. But Trump's rulemakers want to open their doors up once and for all, dovetailing with the industry's own efforts to do the same.
There's just one potential problem: What's on the other side of those doors is a market that is starting to look a lot less like a sure thing.
The S&P 500, a benchmark for U.S. stocks, recently outperformed private market funds for the first time since 2000, the Financial Times reported. Private equity deal-making has ground to a near halt. Some big investors like Yale's endowment are dumping massive private market portfolios. And Moody's Ratings warned last week that the investment industry's campaign to offer individuals access to private markets is riddled with risks — for the firms, investors and the economy.
'It's a really bad idea to get retail investors involved,' said former Federal Deposit Insurance Corp. Chair Sheila Bair. 'Passive stock funds are by far the lowest cost and best return. So just stick with it. Let the professionals do the fancy stuff.'
For critics, the concerns include a lack of transparency in the private markets, questions about how rigorously companies are valued and the fact that many of the buzzy businesses that investors tend to gravitate toward will likely fail.
Advocates for opening up the private markets argue that systemic concerns are overblown and that measures of performance can vary dramatically based on which benchmark is being used. With proper guardrails, the markets stand to offer investors a new means to build up their wealth, they say. And that has become all the more critical as fewer companies go public and limit the universe of lucrative investments available to everyday people.
What's more, many Americans historically had exposure to the private markets through pension funds, proponents say. But corporate America's move toward defined-contribution plans like 401(k)s, which generally don't invest in private assets, has robbed them of such access.
'Policymakers in Washington believe that historically the only people that had access to the private markets were the uber wealthy and pension-fund recipients. Why not, with appropriate guardrails, allow other retirees through their 401(k)s to also have access?' said American Investment Council CEO Drew Maloney, whose group represents both private equity and private credit firms. 'It's about giving investors more choices.'
Still, the criticisms threaten to undercut the push to expand private markets — a pillar of the Trump administration's financial regulatory agenda.
Last month, SEC Chair Paul Atkins directed the agency's staff to reconsider 23-year-old guidance that he said had blocked individual investors from putting their money into funds that invest in private markets through hedge funds and private equity funds. (On Friday, Atkins also named longtime private equity and hedge fund attorney Brian Daly to lead his investment management division.) And the House Financial Services Committee recently advanced three bills aimed at loosening up who can invest in the private markets by changing the so-called accredited investor definition.
Of course, U.S. financial markets are built on an ethos of buyer beware, and the industry's effort to offer private-market products to mom-and-pop investors is not a guaranteed success, no matter what policymakers do. But while there are concerns about the state of the markets, Elisabeth de Fontenay, a law professor at Duke University, says regulators appear to be 'full steam ahead.'
'The markets have changed,' said Dalia Blass, a partner at Sullivan & Cromwell who led the SEC's Investment Management Division during the first Trump administration. 'The public markets are no longer what they were. They're important, but they're not the sizable component that they used to be, and if retail investors are just exposed to public markets and nothing else, they are losing out on the [value creation] that we all used to benefit from when companies IPO'd.'
'So there is this shift,' she added, and 'are you going to shift the retail investor opportunity to match the shift in the market is something that we need to talk about.'
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Driving the Week
Tuesday… The Senate will vote on the GENIUS Act, a landmark bill proposing a regulatory framework for stablecoins. … The Business Roundtable hosts its CEO Workforce Forum at 8 a.m., featuring JPMorgan Chase's Jamie Dimon, Deputy Labor Secretary Keith Sonderling and Accenture CEO Julie Sweet.
Wednesday… The American Enterprise Institute hosts an event on U.S. trade and the global economic outlook at 10 a.m. Speakers will include Jason Furman, former top economic adviser to President Barack Obama, Goldman Sachs Chief Economist Jan Hatzius, AEI Senior Fellow Desmond Lachman and former long-time Treasury official Mark Sobel. … HUD Secretary Scott Turner speaks at the Exchequer Club at 1 p.m. … The Federal Reserve will make its interest-rate announcement at 2 p.m. … Fed Chair Jerome Powell's press conference will follow.
Thursday… Juneteenth National Independence Day
Welcome to G7 week — President Donald Trump landed in Canada on Sunday facing 'a potentially calamitous tariff deadline and a burgeoning crisis in the Middle East. But he's unlikely to leave the three-day summit with a breakthrough on either front,' Adam Cancryn reports.
— 'Trump officials are struggling to lock down trade pacts that they predicted were imminent in the wake of a first deal with the U.K. nearly a month ago. Even early chatter of a deal with Japan by this week's conference appears unlikely, said two people close to the White House, granted anonymity to discuss internal deliberations. And now, with the U.S. occupied by turmoil in the Middle East, Trump aides and advisers are tempering expectations for what the G7 may ultimately produce,' Adam writes.
— As for Mark Carney, this week's gathering of global leaders poses a major test for Canada's new leader, reports Nick Taylor-Vaisey. From Nick: 'Carney came to power by campaigning openly against Trump's belligerence. But now he has a direct line to the president, with whom he's negotiating an economic and security deal.'
In the markets — Volatility, volatility, volatility. After the Cboe Volatility Index — the commonly referred to 'fear gauge' of Wall Street — spiked on Friday, markets look to be on edge again this week. As Bloomberg's Grant Smith and Anthony Di Paola report, oil traders are watching for higher prices after Israel's strikes on Iran 'heightened the risk to Middle East supplies.'
ICYMI: Tax package inbound — Meredith Lee Hill, Jordain Carney and Benjamin Guggenheim reported Friday that text on the Senate GOP's tax package is expected to drop today.
At the regulators
What to do about Fannie and Freddie — Trump's surprise vow to take the housing giants Fannie Mae and Freddie Mac public is being met with new questions from GOP lawmakers and the mortgage industry, 'setting up a potential rift' in Washington, Katy O'Donnell reports.
— 'I want to get them out of conservatorship,' said Sen. Mike Rounds of South Dakota, who is also chair of the Senate Banking subcommittee that has authority over Fannie and Freddie. 'But I want to be very careful about how we do it, because we need the secondary market, and we need it to work.'
First in MM: A new PCAOB defender — From your host: 'A Republican-led push to fold the top U.S. audit watchdog into the SEC risks blocking federal authorities from inspecting European Union auditors for years, a group representing EU audit authorities warned in a recent letter seen by POLITICO.'
It's crunch time — 'The Federal Reserve announced on Friday it would release the latest results of its annual stress tests for the nation's biggest banks on June 27,' Michael Stratford reports.
Fly Around
Corporate America eyes stablecoins — 'Walmart, Amazon.com and other multinational giants have recently explored whether to issue their own stablecoins in the U.S.,' the Wall Street Journal's Gina Heeb, AnnaMaria Andriotis and Josh Dawsey report.
— 'A move to launch crypto-based payments by Walmart or Amazon that bypasses the traditional payments system would send shivers through the nation's banks and card-network giants,' they add.
Real estate? In this economy? — While Trump may be best known as the real estate mogul-turned-reality television star-turned-president, the billionaire's recent financial disclosure for 2024 show that his well-known interests in the world of crypto are becoming a fixture in his business empire, The New York Times' Ben Protess and Andrea Fuller report.
Jobs report
The SEC's hiring spree — SEC Chair Paul Atkins's team became that much clearer Friday when the Wall Street regulator named Brian Daly of Akin Gump its new head of investment management, your host reports. The SEC also officially named Jamie Selway as its trading and markets director, while tapping Kurt Hohl as chief accountant.
— Erik Hotmire, a former spokesperson at the agency under then-Chair Chris Cox, is returning to the SEC as public affairs director, starting today, the agency said.