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It’s hard not to laugh (hollowly) at the state of financial regulation in today’s America.
The shot, from the WSJ three days ago:
SEC Chair Signals Investor Access to Private Markets Could Soon Broaden
The Securities and Exchange Commission’s new chairman signaled Monday that he is open to letting fund managers sell private-investment products to a broader swath of investors.
The chaser, from the FT yesterday:
Banks’ links to private credit could pose systemic risk, says Boston Fed
Bank lending to the $1.6tn private credit industry may pose systemic risks to the US financial system during an economic downturn, the Federal Reserve’s Boston branch warned on Wednesday.
Yes, new SEC chair Paul Atkins was talking about private markets in general, rather than private credit specifically. But the general thrust is clear: the “democratisation” of private assets — a tragicomically misleading term often used to mask selling any old shite to people that often don’t know any better — is definitely happening, apparently with the blessing of the US financial watchdog.
At the same time, the Federal Reserve seems to be taking the dangers a lot more seriously. The Boston Fed paper referenced by MainFT is just the latest instalment. The Atlanta Fed hosted a panel on it earlier this week, and the central Fed has been cautious for at least a year. The IMF, the Financial Stability Board, the European Central Bank and the US government’s own Financial Stability Oversight Council have all to varying degrees also expressed some concerns recently.
FTAV happens to think that the systemic fears are probably overblown. The size of the industry is still too small, the leverage is too low, and the investment capital too tied up for any setback to escalate from financial embarrassment to financial crisis.
However, that is not the same as saying that this is something that the main US financial regulator should be actively encouraging either. There already seems to be a lot of make-believe stuff going on at the moment to mask the pain inflicted by slower growth and higher rates.
The wealth-incinerating Spac boom-and-bust happened just a few years ago, and its pretty weird that insiders often making out like bandits while ordinary investors got hosed didn’t cause more of a political kerfuffle. Now, there seems to be a whole new arc happening in private markets. Good news for Alphaville, we suppose.
Further reading:
— Private Credit’s Latest Golden Moment Is Hiding the Cracks (Bloomberg)
https://www.ft.com/content/33b57ca0-d356-4efc-a5b4-98df5f6c8f21
