The SEC’s Newest Proposals Would Make Private Equity a Bit Easier on the Eyes

A new proposition from the Securities and Exchange Commission (SEC) could help private equity firms carry out their business practices while improving the information that investors receive regarding the acquisition and disposition of businesses.

“The proposed rules are, first and foremost, intended to ensure that investors receive the financial information necessary to understand the potential effects of significant acquisitions or dispositions,” said SEC Chairman Jay Clayton. “The staff’s work to eliminate unnecessary costs and burdens of the current rules—which in some cases have been significant and frustrated otherwise attractive transactions—while at the same time improving the disclosures investors receive should be applauded.”

The proposals, in aggregate, intend to improve the degree and quality of financial information regarding target companies and ones they are looking to divest, reduce the typical complexity and cost to prepare these disclosures, and facilitate more timely access to capital.

To do this, the SEC laid out their proposition, which among many other things, would decrease the amount of financial statements of acquired businesses to cover up to the two most recent years rather than three, clarify when financial statements and pro forma financial information are required, amend the pro forma financial information requirements to improve the content and relevance of such information, and clarify when financial statements and pro forma financial information are required.

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The proposals are now subject to a 60-day public comment period before moving forward in the approval process.

Private equity investors are subject to some of the best returns in institutional investors’ portfolios, in large part due to their flexibility when working with portfolio allocators through separately managed accounts and co-investment vehicles.

Of note, the Alaska Permanent Fund Corp.’s newly minted Chief Investment Officer Marcus Frampton spoke with CIO on the lucrative nature of these private investments, where he and his team were able to generate five-year annualized returns surmising higher than 60%.

The SEC’s propositions can also help out other large institutional investors that are actively investing in the space, including the Washington State Investment Board which recently committed more than $2 billion to the asset class, and the Teachers’ Retirement System of Texas, which carried out a huge $600 million commitment to Blackstone’s latest flagship private equity fund.

Related Stories:
Texas Teachers’ Shoulders Its Way into Blackstone’s Behemoth Private Equity Fund

Washington State Investment Board Commits More than $2 Billion to Private Equity

Marcus Frampton: New Sheriff in Juneau

Tags: Alaska Permanent Fund Corporation, Jay Clayton, Private Equity, SEC

Some good news for the problematic housing industry: Sales of new homes continue to nudge up, likely due to dipping mortgage costs.

Now, all the housing market needs is for flagging existing home sales to get the message.

The National Association of Home Builders index, which tumbled a stunning 15% from October to January, returned this month to last year’s healthy levels. Ian Shepherdson, chief economist at Pantheon Macroeconomics, attributed much of the rise to lower mortgage rates—a 30-year loan now charges 4.25%, almost a full point below last fall, according to Bankrate.

Strong job growth this year is another factor, said Shepherdson. Consequently, he added in a research note that he expects new home sales to “hit new highs in the summer, lifting homebuilders’ sentiment too, and allowing them to run down excess inventory.”

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The housing market. which has been gradually lifting itself out of the Great Recession doldrums despite a downward detour during the 2014-15 oil slump, sparked concern in late 2018 and earlier this year. Slowing global economies and escalating Federal Reserve-ordered interest rates combined to chill housing’s advance. Not to mention wildfires, hurricanes, and unusually cold weather.

“In short, talk earlier this year of a housing-led downturn in the broader economy was way off the mark,” Shepherdson wrote.

But for the housing market, crosscurrents do linger. Following a surge in February, the far-larger existing home sales sector flagged a worrisome 4.9%. In all, reports the National Association of Realtors (NAR), sales of these homes are down 5.4% from 12 months before.

A large part of that falloff may stem from the ongoing problem with affordability. The NAR’s affordability index slid 2.8% in February, the last month available, compared to the year-before number. The median price for a single-family home rose 3.6% to $251,400 over the period.

Tags: Federal Reserve, Housing, National Association of Home Builders, National Association of Realtors