The “shadow banks” that were blamed for much of the financial crisis may be stepping back into the limelight. 

Once a murky corner of the investing landscape, private investments that offer stakes in deals not available on traditional exchanges — like private equity, home lending, real estate, or infrastructure — are quickly becoming an area of increased focus for everyday investors. BlackRock’s $3.2 billion megadeal for the U.K-based alternative data and analytics provider Preqin highlights a massive push by some of the world’s largest asset managers into the very exclusive world of private markets.

Private Parts

The deal, announced on Monday, would fold Preqin’s reporting of some 190,000 private investments for 200,000 users into the firm’s global technology architecture. BlackRock, famed for its passive investing strategies in its iShares segment, also hinted at the ability to launch exchange-traded funds of private placements that will help give retail investors more transparency and suck up even more investment dollars. According to BlackRock, Preqin is expected to generate roughly $240 million in recurring revenue and has grown approximately 20% per year in the last three years. 

Preqin provides data on private investments, which have become popular tools in recent years. Private markets can outperform public investments over time, and can help boost diversification in client portfolios. Of course, the deals are also much less liquid than equities, meaning investors have to lock up their money for years or decades, and can often come with much greater risk:

• Assets have more than tripled to $11.8 trillion in 2023 over the past decade, according to data from the World Economic Forum. 
• Private markets were traditionally the realm of institutional investors, but many investments have now opened up to retail investors.
• Growth is expected to continue, with assets topping $18.3 trillion by 2027.

Behind the Curtain: The Securities and Exchange Commission is aiming to pass sweeping regulations that would curtail private equity groups, hedge funds, and real estate investment firms. The hope is to bring oversight and transparency, although the plan is getting pushback and being labeled as a gross regulatory overstep.

Transparency is the No. 1 objective of the initiative, according to the Commission, which would require funds to actually provide detailed performance reports each quarter. What a novel idea.

Here’s to taking everyone to federal court.

The Supreme Court weighed in last week on an impactful case ahead of its July break that could significantly minimize the Securities and Exchange Commission’s ability to litigate enforcement actions in-house. The case, known as SEC v. Jarkesy, forces the agency to move any lawsuits through the federal court system instead of its own tribunals, which could reshape how the wealth management industry is overseen by watchdogs.

“It’s an important ruling, obviously, that went all the way to the Supreme Court,” Emily Renshaw, a partner with the securities regulation law firm Morgan Lewis, told The Daily Upside.

Can I Get a Jury?

The Jarkesy case revolved around whether a former hedge fund manager and conservative radio host, who was accused of defrauding investors and ordered to pay $1 million in damages, was entitled to a jury trial by his peers. The country’s highest court leaned on the Seventh Amendment’s right to a trial by jury, and determined that the SEC’s administrative law process had too much power. 

“The federal court provides protections to defendants that weren’t necessarily available through the SEC’s administrative proceeding,” Renshaw said. “This can be viewed as a positive development for respondents and defendants.” She doesn’t expect a dramatic shift in how cases are handled generally, adding that the SEC had been preparing for this decision for over five years: 

• The agency has slowly moved cases out of its in-house systems ahead of the anticipated ruling.
• There have been just two pending cases as of the end of March, according to Bloomberg Law. 

Famed entrepreneur Mark Cuban, who was accused of insider trading by the Commission in 2013 then cleared by a Texas court, applauded the ruling on social media. “The SEC will always try every way it can to put its finger on the scale of justice,” Cuban wrote in a tweet. 

Chevron Doctrine: Another ruling that was handed down last week could also impact the SEC. The Chevron doctrine told courts to defer to the federal agency’s interpretation of a law when faced with any misinterpretation. The Supreme Court reversed that stance with a ruling on Friday; the decision could have reverberations throughout almost every major government regulatory agency.

With two significant cases decided against it in two days, the SEC is hoping the court takes a very long July vacation.

Going after the richest of the rich — so crazy, it just might work.

UBS is the latest megabank to revamp its business with an eye toward courting the world’s most well-heeled investors as it looks to boost its underperforming US business. The strategy involves forming a new unit, called GWM Solutions, that will act as a one-stop shop for super-wealthy investors, packaging investments, lending, family and institutional wealth, and alternatives. 

The leaders of the bank’s global wealth management business, Iqbal Khan and Rob Karofsky, informed employees of the news in an internal memo last week that was reviewed by The Daily Upside. The Zurich-based bank joins a growing list of wealth management’s elite firms, including JPMorgan and Goldman Sachs, to focus on the upper echelon of investors.

A New Regime

It’s not rocket science — wealthy investors provide managers with the best bang for their buck. In recent years, JPMorgan has attracted more than $15 billion from wealthy investors via separately managed accounts that benefit ultra-high-net-worth individuals. Clients get the benefits of tax-loss harvesting, and the bank gets to charge handsome fees on accounts with sky-high minimum requirements.

Still fresh from its takeover of Credit Suisse, UBS’ wealth management unit now oversees more than $4 trillion:

• Former Credit Suisse wealth banker Yves-Alain Sommerhalder will lead the new GMW Solutions unit, according to the company memo.
• UBS has also poached longtime JPMorgan exec Mike Camacho to reinvigorate its US wealth management business. 
• UBS is finding its footing in the US, which is home to the most centi-millionaires and billionaires of any nation, with 9,850 and 788, respectively, according to the latest USA Wealth Report. 

Succession Progression: Khan previously ran the bank’s wealth business by himself, but he’s now joined by Karofsky, who was the bank’s investment head. Khan is also relocating to Asia and will become the bank’s Asia-Pacific region president, too. Both are being touted as prime candidates for the company’s CEO position once Sergio Ermotti retires, according to reports.