SEC Study Highlights Dominance of Private Placement Market
The SEC’s Division of Economic and Risk Analysis has released a study investigating the use of private placements (“Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009-2012”). The Report finds that the private placement market exceeded the public market in 2012 ($1.7 trillion raised versus $1.2 trillion raised) and that Regulation D offerings occur with far greater frequency. The Report indicates that hedge funds and private equity funds accounted for more than 83% of private placement capital raised since 2009. The Report also indicates that 99% of private placements utilize Rule 506, which avoids blue sky registrations. The Report also states that non-accredited investors participated in only 10% of private placements, and hedge funds utilized intermediaries in only 6% of offerings. The Report analyzed data from Form D filings.
OUR TAKE: We can only speculate why private offerings have become the dominant tool for capital formation. We suspect that less regulation, lower costs, and speed to market all play a factor. Whatever the reasons, private placements have become critical to the investment funds business.