The US Securities and Exchange Commission proposal, which aims to address the lack of transparency in private markets, is a step in the right direction (“Financial iniquity under SEC spotlight”, Opinion, February 9), but it does too little to protect our savings and pensions.
The proposal forces private equity managers to disclose fees and returns in greater detail. It’s a great step, but let’s remember that private market returns are somewhat subjective (and often in the eye of the beholder). Unlike their public counterparts, shares of private markets are not traded on exchanges, which would allow for real-time measurement.
Instead, value (and thus returns) is only measured when transactions occur, which happen seldom. Absent a transaction, value could be estimated as a multiple of financial metrics. But financial metrics are not part of the disclosure, which defeats the purpose.
Disclosing returns without visibility on their drivers could be an open invitation to engineer numbers.
Quarterly disclosure in public markets has created some distortions in that sense. Could the same be happening here?
Andrea Gentilini
Head, SEI Novus, Zurich, Switzerland
Letter: Here’s why more disclosure in private markets may fail
Pinoy Variant