Hedge funds and private equity firms may be inching closer to getting their hands on a big pot of money that U.S. regulators have mostly kept out of reach: Cash from mom-and-pop investors.
Such an opportunity would be significant for industries that have largely had to restrict their clients to investors like the super rich, sovereign wealth funds and state pensions. But allowing retail money in also poses risks, including the danger of exposing financial neophytes with limited nest eggs to investments they don’t understand.
The prospect of such a major change was raised Tuesday by the U.S. Securities and Exchange Commission, which said it would seek public comment on whether it should ease long-standing restrictions that prevent regular Americans from investing like the wealthy can.
Advocates for expanding the pool say current rules prevent mom-and-pop from investing in companies like Uber Technologies Inc. and Facebook Inc. at the most lucrative stage when such firms are fast-growing startups. Yet skeptics say they’re worried about unsophisticated investors getting fleeced.
SEC Chairman Jay Clayton, who was appointed by President Donald Trump, hinted at the tension in April, while making clear that he thought retail investors were missing out.
“Our retail investors, people who aren’t qualified investors, aren’t having access to those investment opportunities and over some periods of time those investment opportunities perform better,” he said in an April 9 Bloomberg Television interview with David Rubenstein, the co-founder of private equity firm Carlyle Group Inc. “We want to make sure retail isn’t left behind.”