New reports have been published by the Securities and Exchange Commission, focusing on capital formation and beneficial ownership of qualifying private funds.
According to an SEC press release, the data is from the commission’s Division of Economic and Risk Analysis and is aimed at providing the public with information in three particular areas.
The first two papers pertain to how capital is being raised in the United States, particularly by smaller issues. The reports analyze the Regulations A and Crowdfunding markets, in which over $10 billion was raised in the past decade. Regulation A is an exemption from registration for public offerings that has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $75 million in a 12-month period.
The third paper is an analysis of beneficial ownership concentration and fund outcomes for qualifying hedge funds (QHFs) and their advisers from 2013 to 2023. The data provides information on the interaction of beneficial ownership concentration, portfolio liquidity, investor liquidity, fund leverage, performance, and margins.
“Today’s reports provide key information on the capital markets,” said Robert Fisher, Acting Chief Economist and Director of the SEC’s Division of Economic and Risk Analysis. “Understanding how capital is being raised and the interaction of ownership concentration with fund outcomes for private funds informs not only the Commission but the public about essential parts of our markets.”
The SEC provided further details of the three reports that include the following:
-Analysis of the Regulation A Market: This paper analyzes the state of the Regulation A offering exemption over the past decade. It documents the level of offering activity and reported proceeds as well as the characteristics of issuers and offerings relying on this exemption. There were more than 1,400 offerings during this period seeking more than $28 billion in capital. About $9.4 billion in proceeds was reported by more than 800 issuers. A typical Regulation A issuer was relatively small and young, and most issuers had not yet established a record of profitability.
-Analysis of Crowdfunding Under the JOBS Act: The report analyzes offering activity in the Title III securities-based crowdfunding market between May 16, 2016, (effective date of Regulation Crowdfunding) and December 31, 2024. During that time, there were more than 8,400 offerings initiated by more than 7,100 issuers, excluding withdrawn offerings. The offerings sought about $560 million based on the target (minimum) amount. However, almost all offerings had a minimum-maximum format and accepted oversubscriptions up to a higher maximum. The maximum amount sought in these offerings was approximately $8.4 billion. Based on the analysis of Electronic Data Gathering, Analysis, and Retrieval filings during this period, there were more than 3,800 offerings where issuers reported proceeds; in total, they reported approximately $1.3 billion in proceeds. The crowdfunding exemption has continued to gain momentum over time and serves small and early-stage companies seeking access to capital, often for the first time. The median issuer had approximately $80,000 in total assets, including $13,000 in cash, $60,000 in debt, and $10,000 in revenue, and three employees.
-Beneficial Ownership Concentration and Fund Outcomes for Qualifying Hedge Funds: This report details the relationship between beneficial ownership concentration and fund outcomes for QHFs and their advisers from 2013 to 2023. Over this period, concentrated funds grew faster than unconcentrated funds. Concentrated funds hold more liquid assets and offer more liquidity to investors relative to unconcentrated funds, though both portfolio and investor liquidity have declined over the sample period. In addition, the gross return of unconcentrated funds is on average 1.2% higher than concentrated funds, but their net return is only 0.1% higher indicating that, on average, the gross performance advantage of unconcentrated funds is offset by higher margins.
The Division of Economic and Risk Analysis conducts detailed, high-quality economic and statistical analyses to advise on SEC matters and helps identify and respond to issues, trends, and innovations in the marketplace.
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