Private Markets: Navigating Governance Issues
The growth of private markets since the Global Financial Crisis has captured the attention of regulators worldwide, leading to a closer examination of the sector. Recently, the US courts overturned controversial rules for private fund advisers set by the SEC, signaling a new chapter for the industry.
As private investments evolve in an era of changing financial landscapes, the importance of industry best practices and self-regulation becomes increasingly vital. The CFA Institute Research and Policy Center’s report, “Private Markets: Governance Issues Rise to the Fore,” sheds light on the functioning of private markets and offers recommendations for investors and policymakers based on a global survey of CFA Institute members.
In a conversation with Enterprising Investor, Stephen Deane, CFA, senior director for capital markets policies at CFA Institute and the report’s author, stressed that the objective is not to criticize or endorse private markets but to provide valuable insights.
Ballooning Private Markets
The report highlights the increasing significance of private markets in today’s economy and emphasizes governance issues that emerge from the relationships between fund managers and investors. Despite heightened scrutiny, the lack of public information on private markets leads to varied opinions on regulatory measures.
Deane suggests caution in granting retail access to private markets, citing the absence of robust investor protection frameworks compared to public markets. As private markets continue to expand, maintaining transparency and addressing conflicts of interest become imperative.
US Courts Rein in Regulator
The recent overturning of the SEC Private Fund Adviser Rules by the US Court of Appeals has sparked discussions on the industry’s self-regulatory capabilities. Deane encourages exploring private ordering arrangements that benefit all stakeholders, emphasizing the need for responsible governance practices.
CFA Institute Global Membership Survey
In a global survey conducted by CFA Institute, members expressed a moderate stance on private market issues and regulatory intervention. While there is support for enhanced disclosures and limited regulations, respondents advocate for a balanced approach without excessive restrictions.
Respondents overwhelmingly favor initiatives such as annual audits, quarterly statements, and fair valuation opinions, signaling a consensus on the need for transparency and accountability in private markets.