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.
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.
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