Is this the Most Aggressive SEC Ever? Former Commission Head Thinks So
Gary Gensler was nominated head of the Securities and Exchange Commission just after SEC Chairman Jay Clayton stepped down on December 23, 2020. Cryptocurrency exchanges welcomed the incoming Chair’s appointment as “Gensler unites a pro-regulation history with a pro-crypto viewpoint, and could finally implement the regulatory clarity many in the industry have desired,” said an opinion piece published in Coinbase two months after. It has now been two years, and Chair Gensler’s predecessor, in his new role, shared his views and criticisms this week.
Former SEC chairman Jay Clayton, who is now working in the private sector, said he believes government regulators could do a much better job serving investors and the broader financial markets. The comments came during an address (June 7) in Orlando as he spoke at the BNY Mellon Pershing Insite 23 Conference. In his talk, Clayton highlighted big differences between the SEC under the Biden administration in comparison to the Trump presidency.
“I think it’s pretty clear we’re in a very highly business-skeptical and commercial-skeptical regulatory environment,” he said. “Any time you go to extremes, either way, you get more bad than good.”
Clayton, is now the nonexecutive chair at Apollo Global Management, a large alternative asset manager. He held the position of SEC chairman from May 2017 through December 2020. He believes the regulatory whiplash leaves anyone participating in the financial markets with more questions than answers.
“People don’t know what is really happening, how long it is going to last, and what they should do about it,” he said in reference to what has been described as the most aggressive SEC ever.
Clayton acknowledged that his business is with an alternative investment house, and that he might be accused of “talking his book” as a representative of a firm that manages private investments, but explained that he believes retail class investors are being locked out of suitable investments. He believes there should be a democratization of alternative investments, which has been an SEC focus. The accredited investor policies may not be best for the average person planning for the future.
“Capital formation these days largely comes from outside the public markets, yet the investing public is largely held outside those private markets,” he said. “All investors should have access to a portfolio that looks like a well-managed pension fund. With the help of a lot of the people in this room, I think we’re going to be able to do it,” he optimistically said addressing the large group from the wealth management industry.
He called on investment management firms to do their part to help regulators by making an effort to create products that are more broadly suited to the full universe of investors. Clayton took particular issue with the current accreditation rules. Saying the 40-year-old accredited investor rule doesn’t jive with today’s reality, an environment where individual investors are largely responsible for their own retirement income.
The former SEC head pointed out what he thought to be absurd, mentioning qualified retirement accounts (401k, 403b, IRAs) that give retail investors access to highly liquid mutual funds and perhaps ETFs, but not less liquid investments that would be better suited for long-term investing objectives.
“You’re paying for liquidity that you don’t need and can’t access,” Clayton said. “Pick a target-date fund, for example, why wouldn’t there be a sliver of privates or alternatives in there? If I’m a 401(k) investor, I should be able to get something that looks like a Calpers portfolio. Why wouldn’t you have a 10% slice of privates in your retirement portfolio when you’re 50 years old?” He said referring to the large institution managing the California teachers retirement portfolio.
Take Away
The former SEC head Jay Clayton believes that the sharp move from lowering regulatoryinvestment hurdles, to erecting the most aggressive in history under the current leadership of Gary Gensler, is bad for investors. He doesn’t argue strongly for either side, as much as he is against sudden changes and the impact it has on investors.
Clayton also supports alternative funds for the average retail investor, especially as it relates to long-term savings such as retirement accounts.
Insite23, the investor conference Jay Clayton was addressing in Orlando, FL, draws wealth management professionals from across the US. This coming December, the Channelchek-sponsored investor conference, NobleCon19 will be held in Boca Raton, Fl. This annual conference, in its 19th year, draws institutional and self-directed investors from beyond the US, who wish to attend presentations, breakout sessions, and panel discussions with CEOs, and even former government leaders. Those attending this year’s NobleCon will get to assess lesser-known investment opportunities along with the current investment climate. Attendees can look forward to two days filled with actionable opportunities explained by those with direct knowledge at the company’s helm.
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Managing Editor, Channelchek
Sources
State of Crypto: How SEC Chair Gary Gensler Could Differ From Predecessor Jay Clayton
Former SEC Chair Clayton makes case for democratizing alternative investments