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SEC gives more investors access to private equity, hedge funds

In a 3-2 vote, the agency’s commissioners expanded the definition of accredited investors

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The Securities and Exchange Commission deemed more investors capable of navigating the opaque world of leveraged buyouts, hedge funds and start-ups, a decision likely to fuel further growth in loosely regulated private markets.

Commissioners voted 3-2 on Wednesday to approve a proposal expanding its definition of so-called accredited investors to include holders of an entry-level stockbroker’s licence, “knowledgeable employees” of non-public firms and others. It also opened the door to further broadening the category to holders of other credentials.

Until now, investors could be considered accredited if they had $1m in net assets, not counting their primary residence, or at least $200,000 in annual income.

The thresholds aren’t indexed for inflation, so the ranks of people who meet them will likely continue to grow.

The SEC didn’t provide an estimate of the number of people who would qualify under the new rule, but its decision to designate certain credentials as a measure of financial literacy is likely to prompt other groups — from chartered financial analysts to holders of law degrees and MBAs — to seek accredited-investor status.

“Now that they’ve opened this door, there’s going to be a lot of trucks trying to drive through,” said Tyler Gellasch, executive director of Healthy Markets, an investor group focused on market structure. “It’s really hard for them to credibly distinguish one qualification from another.”

Wednesday’s decision is the latest effort during the Trump administration to give managers of private equity firms, hedge funds and aspiring tech unicorns access to new investors and deeper pools of capital. It follows a move in June by the Labor Department to allow employee 401(k) plans to incorporate private equity into diversified retirement funds.

The trend reflects years of intensive lobbying by private market players whose influence in Washington has risen in tandem with their assets under management. The SEC estimates that $2.7tn was raised on private markets last year, compared with $1.2tn on public markets.

Since Wednesday’s rule was proposed in December, SEC staff and representatives of Chairman Jay Clayton and Republican commissioners Elad Roisman and Hester Peirce have had 13 meetings or phone calls to discuss the proposal with lobbyists for angel investors, private equity firms and hedge funds.

Those groups, which represent hedge funds such as Bridgewater Associates and buyout firms such as Blackstone Group and Carlyle Group, had sent letters praising the SEC for proposing the changes and urging it to expand the accredited-investor category further. Supporters of the change say that private markets — where SEC’s requirements for financial reporting and other disclosures generally don’t apply — have grown too large to ignore and that wealth is a crude test of a person’s ability to understand the risks involved.

“Individual investors who do not meet the wealth tests, but who clearly are financially sophisticated enough to understand the risks of participating in unregistered offerings, are denied the opportunity to invest in our private markets,” Clayton said in a statement Wednesday.

He added that the existing rules might also crimp the ability of small or start-up businesses to grow if their owners aren’t well connected to networks of wealthy friends and family.

Peirce, who voted for the proposal but said it didn’t go far enough, said the very concept of accredited investors “assumes that individuals cannot be trusted to exercise proper due diligence before making an investment decision.”

Critics of the change point out that due diligence is impossible without adequate disclosure about an investment, a key principle in US securities laws drawn up after the 1929 stock market crash.

They say the notion that some investors can fend for themselves in the absence of mandatory disclosure by companies contradicts the SEC’s own website, which says, “Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.”

The rise of private markets has coincided with a steady opening of loopholes that exempt some companies and investment funds from the laws governing publicly traded companies and mutual funds. Before the early 1980s, nearly all securities offerings were required to be registered.

Since then, the number of households that likely qualify as accredited investors has risen to around 16 million in 2019 from 1.31 million in 1983—in part because the wealth thresholds aren’t adjusted for inflation.

Under the proposal advanced on Wednesday, current income and wealth requirements would remain unadjusted for inflation, making it likely that more households would qualify as accredited investors over time.

Both dissenting votes came from the SEC’s Democratic commissioners, Caroline Crenshaw and Allison Herren Lee.

“With its actions today, the Commission continues a steady expansion of the private market, affording issuers of unregistered securities access to more and more investors without due regard for the risks they face,” Crenshaw and Lee said in a joint statement.

Write to Paul Kiernan at paul.kiernan@wsj.com

 From The Wall Street Journal

Source: https://www.penews.com/articles/sec-gives-more-investors-access-to-private-equity-hedge-funds-20200827

Private Equity

Venture Capital: Toast Valued At $8B In Secondary Share Offering By Employees

Toast, which makes software for restaurants, has rebounded from the pandemic like a phoenix. Consider this: In February, shortly before the pandemic, the start-up raised $ 400 million at a valuation of $ 4.9 billion. After the virus, in April, Toast faced up to the economic devastation and cut its workforce by 50% through layoffs and furloughs. It also was forced to cut executive pay, freeze hiring, and halt bonuses. However, the startup’s software for takeout orders enabled in-house dining restaurants to pivot to the alternative mode of service. Result: business is good again.

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Venture Capital: Toast Valued At $8B In Secondary Share Offering By Employees

https://platodata.net/wp-content/uploads/2020/11/venture-capital-toast-valued-at-8b-in-secondary-share-offering-by-employees.png

Vested shares held by employees sold at $75 each.

Toast, which makes software for restaurants, has rebounded from the pandemic like a phoenix. Consider this: In February, shortly before the pandemic, the start-up raised $ 400 million at a valuation of  $ 4.9 billion. After the virus, in April, Toast faced up to the economic devastation and cut its workforce by 50% through layoffs and furloughs. It also was forced to cut executive pay, freeze hiring, and halt bonuses. However, the startup’s software for takeout orders enabled in-house dining restaurants to pivot to the alternative mode of service. Result: business is good again. (CNBC)

Toast valued at $8 billion

In a nutshell, despite the ravages from the virus pandemic, Toast managed to hike its valuation from nearly $ 5 billion in February to $ 8 billion in November.

With business now booming, Toast did not forget its employees. It allowed them to encash some of their shareholdings by selling up to 25% of their vested shares for $ 75 each in a secondary sale.

People with knowledge of the matter told CNBC that the secondary offer was for 800,000 shares worth about $ 60 million.

“In order to support our employees and former employees as they navigate the impact of Covid-19, we did complete a secondary offering recently,” a company spokesman confirmed to CNBC, though he refused to reveal the identity of the buyer(s) or the valuation.

A sea change in Toast’s fortunes

According to CNBC, recent bids in the secondary market have valued Toast significantly above this $ 8 billion valuation.

The company also rehired many of the personnel it had laid off earlier.

Meanwhile, the market considers the start-up as a candidate for an IPO in 2021.

Related Story:  Restaurant Software Maker Toast Raises $400 Million

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Source: https://dailyalts.com/toast-valued-at-8b-in-secondary-share-offering-by-employees/

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Private Equity

AA indicates it would accept £218m PE takeover offer

Warburg Pincus and TowerBrook offer 35p per share

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UK roadside assistance firm AA could return to private equity ownership after saying it would be prepared to recommend a £218m takeover offer from London-based TowerBrook Capital Partners and New York-based Warburg Pincus.

The two private equity groups have offered to pay 35p a share and invest £380m in the company to reduce its current debt pile of £2.6bn – much of which was accumulated when the motoring group was previously under private equity ownership.

Until 2014, when it was floated with debts of £3bn, the AA was owned by private equity firms CVC and Permira.

Rick Haythornthwaite, a former chairman of Centrica, has been lined up to chair the AA following the acquisition.

The AA said in a statement: “The board, having considered carefully the viability of a range of alternative potential debt and equity refinancing options together with its financial advisers, has indicated to the consortium that it would be willing to recommend a cash offer on the terms of the proposal.

“Accordingly, the company is engaged in advanced discussions with the consortium in relation to the possible offer.”

To contact the author of this story with feedback or news, email PEN Editorial

Source: https://www.penews.com/articles/aa-indicates-it-would-accept-218m-pe-takeover-offer-20201124

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Private Equity

Digital Assets: Gazprombank Switzerland Flags Off Bitcoin Transactions

Gazprombank Switzerland, which is the wholly-owned Swiss arm of Russia’s Gazprombank (JSC), has debuted its bitcoin trading according to an announcement on November 19 by Avaloq, a provider of digital banking solutions.

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Digital Assets: Gazprombank Switzerland Flags Off Bitcoin Transactions

https://platodata.net/wp-content/uploads/2020/11/digital-assets-gazprombank-switzerland-flags-off-bitcoin-transactions.jpg

Gazprombank Switzerland announced that it successfully performed its first transactions in bitcoin.

Gazprombank Switzerland, which is the wholly-owned Swiss arm of Russia’s Gazprombank (JSC), has debuted its bitcoin trading according to an announcement on November 19 by Avaloq, a provider of digital banking solutions.

We wrote last month that the Swiss Financial Market Supervisory Authority had cleared Gazprombank Switzerland for offering crypto custody and trading services to its institutional and corporate clients.

Under that regulatory green signal, the bank kicked off its first transactions in bitcoin offered inside a solution that leverages its relationship with Avaloq, a leader in digital banking solutions, and METACO, a provider of security-critical infrastructure enabling financial institutions to enter the digital asset ecosystem. (Fintech Switzerland)

OpenVASP Association

The announcement also said that a bilateral agreement had been signed for the first time in Switzerland between a bank (Gazprombank) and Bitcoin Suisse (a virtual asset service provider, or VASP). The latter is a longtime partner of Gazprombank and one of the earliest Swiss players in crypto-financial services.

The bank also became a member of the OpenVasp Association which facilitates the transmission of transaction information between VASPs and other parties. It also helps VASPs comply with the anti-money laundering regulations issued by the Financial Action Task Force.

Transacting cryptocurrencies easily

“Digital assets will become increasingly important for our clients and the global economy,” said Roman Abdulin, CEO at Gazprombank. “Our solution allows us to make transactions with cryptocurrencies as easy as transactions with traditional assets.”

“The rollout of our crypto offering represents an important milestone in our journey to power the development of crypto and blockchain technology and provide investors, wealth managers, and financial institutions with more convenient, transparent, and simple solutions in order to accelerate their investment in crypto assets,” said Thomas Beck, Group Chief Technology Officer at Avaloq.

“This milestone highlights both the strength of our institutional operating system for digital assets, SILO, as well as the significant demand among financial institutions for trusted infrastructure partners,” said Adrien Treccani, CEO and Founder of METACO. “This rollout is another step towards our vision of bringing crypto asset management technology to financial institutions across the globe.”

Related Story:  Gazprombank (Switzerland) FINMA-Cleared For Crypto Bank Accounts

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Source: https://dailyalts.com/gazprombank-switzerland-flags-off-bitcoin-transactions/

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