PitchBook News - SEC ups its private markets scrutiny

Read online | Don't want to receive these emails? Manage your subscription.

PitchBook

Log in

The Weekend Pitch

February 6, 2022

Presented by RSM

(akindo/Getty Images)

A year has passed since Gary Gensler was nominated to his post as SEC chairman. In that relatively short time, the agency has drawn up an agenda for private markets that is quickly gaining steam.

Two pieces of news from recent weeks offer an indication of what the next few years could bring.

The Wall Street Journal reported in early January that the SEC is weighing rules to require more private companies to disclose information related to their finances and operations. Companies that are privately held often get around current reporting rules, which are based on the number of investors. Gensler and the SEC reportedly want to close those loopholes.

Then, on Jan. 26, the agency proposed a series of rule changes that call for more information disclosures, faster, from a larger pool of private equity and hedge funds. For both classes of investors, the rules would require next-day disclosures of significant events.

Taken alongside prior public comments by commissioners, these developments indicate that Gensler's SEC has momentous plans for the lightly regulated and highly opaque private market, which has become too big to hide from the SEC's purview.

The agency pegs the net assets of US private funds at around $11.5 trillion—$4.7 trillion of which is managed by hedge funds and $4.2 trillion by private equity funds. In the US alone, 340 companies became unicorns in 2021, more than were minted during the previous five years combined, according to PitchBook data. And more deployable capital is accumulating quickly, with PE firms raising over $300 billion and VC firms adding more than $128 billion in 2021.

On top of their size, private markets have attracted scrutiny for a series of market debacles. Last year, an unlikely trio of then-private companies—Citadel Securities, Robinhood and Reddit—were at the center of the weirdest public stock event in recent memory. There was the spectacular collapse of Archegos Capital, a highly leveraged fund that reportedly failed to meet its margin calls. And several high-profile SPAC deals drew charges of fraud from the SEC in their quest to take private companies public.

The agency seems convinced that bringing transparency to the private sector is fundamental to its core mission to protect investors and improve the functioning of the markets. I'm James Thorne and this is The Weekend Pitch. You can reach me at james.thorne@pitchbook.com or @jamescthorne on Twitter.

Quote/Unquote

(PM Images/Getty Images)

"When sponsors came to investors with the idea of doing single-asset continuation funds for their best companies, that really resonated with them."

—Andy Nick, a managing director at Jefferies, on continuation funds becoming the most common structure for sponsor-led secondary deals.

Here's a closer look at how the secondaries market is making a comeback as more GPs hold onto their investments for longer by rolling them into new continuation funds.

Deal Flow

Information security startups reached $28.4 billion in exit value across a record 132 deals last year, according to PitchBook data. Endpoint security and identity & access management companies accounted for over half of all exit counts.

Our annual report on the information security sector dives deep into 2021's VC investment activity and other trends in subsegments like application security, network security and data security. And check out our Infosec Market Map to see where exactly the capital is being concentrated.

Did you know ...

(elenabs/Getty Images)

… That venture capitalists poured more than $12 billion into global HR tech startups in 2021? That number is roughly 3.6 times the amount of capital invested in 2020, according to PitchBook data.

As startups in the sector continue to help employers hire diverse workforces and navigate remote working arrangements, that momentum has carried over into 2022.

Datapoints

The rolling one-year horizon IRR for VC soared to 65.5% as of Q2 2021, notching the fifth consecutive quarter of sequential IRR increases, according to PitchBook data through June 30.

Check out our latest Global Fund Performance Report, which tracks the fund returns of PE, VC, funds-of-funds, real estate and more through Q2 2021, with preliminary data from Q3 2021.

Recommended reads

The secret story of the Texas philanthropist who helped solve math's toughest riddle. [Texas Monthly]

One independent hacker was disappointed with the lack of US response to attacks against security researchers just over a year ago. This is the story of how he took things into his own hands. [Wired]

Sony agreed this week to a $3.6 billion acquisition of Bungie. Here's a look at why the game studio stands to benefit more from joining a major platform than continuing to go it alone. [Protocol]

A new survey has found that young consumers in emerging economies are more likely to buy sustainable products and be distrustful of corporate sustainability claims. [Bloomberg]

Jump-starting journalism in smaller, economically depressed towns requires patience and a tolerance for risk. But is there even a market for saving local news? [The New Yorker]

Why the tech industry narrative of the 2010s no longer stacks up. [The Economist]

This edition of The Weekend Pitch was written by James Thorne and Priyamvada Mathur. It was edited by Alexander Davis, Angela Sams and Sam Steele.

Were you forwarded The Weekend Pitch? Sign up at pitchbook.com/subscribe.