On the campaign trail, President Trump promised to revive the American economy and deliver greater opportunity for working families: to create “a middle class that is once again the envy of the entire world.” Making that pledge a reality starts with tax cuts and deregulation but doesn’t end there. It will require policymakers to reconsider who has access to wealth-building opportunities.
Unfortunately, far too many Americans lack the tools available to the wealthy. More Americans deserve the opportunity to invest in private markets, and that’s something Trump’s administration can provide.
The Securities and Exchange Commission has a unique opportunity to help level the playing field. It has been more than 30 years since the agency reviewed the regulatory framework for retail funds created by the Investment Company Act of 1940. By modernizing these outdated rules and expanding access to private markets, the Securities and Exchange Commission can help put Main Street investors back on equal footing with Wall Street and big corporations.
Over the last decade, private markets have exploded, growing to around $25 trillion since 2012. Big institutions like pension funds, endowments and hedge funds have long used these investments to earn higher returns than what’s available in the stock market. But for everyday Americans? This opportunity to invest is largely off limits.
Outdated regulations are primarily to blame. They assume retail investors can’t handle the risks of private markets. In reality, institutional fund managers already invest responsibly in private markets on behalf of workers like teachers and police officers. Like any investment, private markets require proper safeguards. But with the right protections in place, there’s no reason similar access couldn’t be extended to individual investors.
This is where the Securities and Exchange Commission can step in.
Consider the current restriction that prevents closed-end funds from allocating more than 15 percent of their assets to private funds. This artificial cap locks Main Street investors out of opportunities their pension funds already enjoy. Removing or relaxing this limit — while maintaining proper oversight — would be a good first step toward giving Main Street access to wealth-building opportunities readily available to Wall Street.
Closed-end funds are uniquely positioned for private investments, but because closed-end funds often trade a discount to their net asset value, short term arbitrageurs often seek to “open” fund to capture the spread between traded value and asset value. Such activists seek to profit at the expense of long-term investors. It would help to design governance structures and legal frameworks that ensure the stability funds need to focus on long-term value. This is not to suggest we shouldn’t have responsive governance and transparency for all investors, but we should encourage and enable long-term thinking and investing.
These common-sense reforms are necessary to remove the barriers that have left the middle class locked out of a key financial tool. We should update old rules to reflect today’s economy and empower more Americans to build wealth in the same way institutions and the wealthy already do.
If the Trump administration wants not only to support but also to build up the middle class, the solution goes beyond creating good jobs and stimulating economic growth. It will also involve expanding access to the financial opportunities that create long-term wealth. It’s time to finally level the playing field and make private markets available to everyone.
Vikram Mansharamani, chairman and CEO of Goodwell Foods, is a former lecturer at Harvard and Yale and has served on the boards of closed-end funds, publicly-traded companies, and start-up technology firms.
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