"...there are significant benefits to expanded investor access to private markets, but only with requisite conditions and safeguards."
Dear Chairman Gensler,
On behalf of the Chartered Alternative Investment Analyst Association (CAIA), we congratulate and welcome you as the newly confirmed Chairman of the SEC. CAIA Association is a global professional body representing 12,000 members in over 100 countries dedicated to improving investment and societal outcomes for clients through professional education, transparency, and thought leadership. We therefore do not claim to “represent” any specific role or interests within the investment management chain but rather are wholly dedicated to a more efficient and trustworthy capital market system that serves the greater good. It is in this spirit and mission alignment that we look forward to a productive relationship with you and the Commission.
We wrote to your predecessor, Chairman Clayton, in March of 2020 expressing our opinion on the Commission’s review of the Accredited Investor rule. In that letter, we clearly stated our belief that there are significant benefits to expanded investor access to private markets, but only with requisite conditions and safeguards. Specifically, we argued that the rule sorely needed modernization given the tectonic shift of capital formation towards private markets in recent decades and that the traditional binary wealth and income test was a poor proxy in isolation to determine sophistication and risk appetite. Instead, we recommended an eligibility model founded upon proper education.
We applauded the principal of the Commission’s amendment in August of 2020, which stated, in part, that “the SEC now defines accredited investors to include the following: individuals who have certain professional certifications, designations or credentials.” Yet, while the amendment left open the prospect for review and approval of professional designations under this revision, the only exams originally cited were the FINRA- licensed Series 7, 65, and 67 examinations. Due to the elementary coverage of investment content and the low stakes nature of these exams, we strongly believe the amendment needs further attention.
Since our original letter last January, we have witnessed an escalated use of private capital exits through the special purpose acquisition company (SPAC) mechanism, accelerated adoption of digital assets, technology and infrastructure, increased tokenization of idiosyncratic and collectible assets, and a necessitated reliance on alternative investments to meet investor outcomes as expected capital market assumptions drop to generational lows. Taken together, it is simply not politically viable or sensible for increasingly large portions of the capital markets to be off limits to large portions of the population. More than ever before, access needs to be governed by an appreciation for the complexity and opacity of these asset classes and strategies. Proper training and education must be at the heart and soul of a careful response to this disruptive and structural shift in product offerings and wealth solutions. A more expansive and thorough list of professional credentials for prospective investors and their advisors, including the CAIA Charter, would contribute to strengthening investor protection amongst accelerating industry evolution.
As the only professional designation dedicated to alternative investments, including private equity, private debt, real estate, infrastructure, and hedge funds, we believe the CAIA Charter or an adaptation thereof defined in partnership with you, is uniquely positioned to be added to this approved list. Further, with its foundation rooted in professional standards, integrity, and fiduciary responsibility, we are confident our program(s) will be a beneficial experience for the candidates and their clients.
We look forward to hearing from you.
William Kelly John L. Bowman, CFA
Chief Executive Officer Senior Managing Director
CAIA Association CAIA Association