By Andy Serwer

"It is a new day at the SEC," declared the new Securities and Exchange Commission Chairman Paul Atkins in Senate testimony on Tuesday, and then presumably to underscore the point, he concluded by asserting, "It is a new and brighter day for the SEC."

Barron's is all in on "new and brighter," seeing the latter as an excellent disinfectant. To what exactly, though, is the chairman referring? Atkins says the commission will return to its core mission of "protecting investors; facilitating capital formation; and maintaining fair, orderly, and efficient markets." Here, too, Barron's approves.

But a closer reading of Atkins' speech suggests he's just as interested in two items nearer and dearer to President Donald Trump's agenda. First, cutting costs: Atkins noted his $2.1 billion budget request is flat and that the SEC reduced its head count by 447 employees, to 4,100. Second, facilitating the crypto economy.

Hewing to the chief executive's wishes isn't necessarily a bad thing and was employed by the first SEC head, Joe Kennedy, under President Franklin D. Roosevelt. Furthermore, moving forward with crypto and especially cutting costs and red tape may make sense. It's just that there was an elephant sitting in room S-128 of the Dirksen Senate Office Building that went unmentioned -- that being the tectonic rise of private markets and what the SEC intends to do about it.

Consider first the sleepy public markets. CoreWeave has been the only large-scale, successful IPO year to date, aside from Circle Internet Group's debut this week. As for dealmaking, many of the big takeovers these days, such as Constellation Energy buying Calpine and Alphabet buying cybersecurity firm Wiz, are essentially just exits by private equity. Meanwhile, the number of operating public companies in the U.S. has plummeted from 8,000 to 4,000 since 1996.

Now flip over to the private markets, where seemingly every day brings another newsmaking coup. Thoma Bravo made headlines this week with its $34 billion fundraise. Two recent high-profile acquisitions, Walgreens Boots Alliance and Skechers USA, were done by private-equity firms. Now more than 11,500 companies are controlled by PE, up from 2,000 in 2000, according to PitchBook.

The booming private-credit market (much of it junk bond loans to middle-market companies) has soared from zilch to some $1.7 trillion. Apollo Global Management, which describes this as a $40 trillion opportunity, just struck a deal with JPMorgan Chase, Goldman Sachs Group, and others to form a private-credit trading platform.

As for venture capital, today 3,111 firms look afterË $1.2 trillion in assets, up from 940 firms running $224 billion in 2007. Check out Anthropic's $1 billion fundraise, or the $500 million by Elon Musk's Neuralink. Speaking of Elon, his xAI is looking to sell $5 billion of debt securities and a slug of equity with a $113 billion valuation. All that pales in comparison to SoftBank Group's $40 billion investment in OpenAI, with a $300 billion valuation.

Hedge fund assets under management have grown from $1.4 trillion to $4.5 trillion since 2015. Then there's the crypto industry, which, even with more fits than starts, is now worth $3.4 trillion. In toto, the SEC says, the number of private funds has mushroomed from approximately 35,000 to some 100,000 over the past decade.

To paraphrase the above-referenced Everett Dirksen, a trillion here, a trillion there, and pretty soon you're talking real money.

What this boils down to is a massive migration from capital activity regulated by the SEC into an ecosystem with much less oversight. This evolution has been of the drip-drip-drip variety, with little attention paid to process or outcome (except by sellers of private-market securities). You could argue this reflects a considerable lack of awareness and/or abdication of responsibility by the SEC. (The SEC didn't respond to a request for an interview.)

"There always has been evolution in financial markets and there continues to be, none of which was channeled by regulation or shaped that way," notes John Arnholz, a securities lawyer now retired from Morgan Lewis. "The move to privates seems inevitable, but there are consequences."

Tell that to the highest profile of public-market participants. "This is a great frustration of mine," said JPMorgan Chase CEO Jamie Dimon last Friday at the Reagan National Economic Forum. "Pretty much all of that was all done without any forethought on the part of our regulators. Like zero, none, nada, not one conversation about the effect of requirements, capital, liquidity, or what it's going to do in these markets. In my view, healthy, public markets are probably better than having moved all that into private markets. But we're going to find out." Indeed, it looks like we are, Jamie.

I asked Bank of America CEO Brian Moynihan if private-credit lenders were taking business away from the bank. "It's a competitor, there's no question," he says. "There are deals that would be hard to do through the bank balance sheet in a regulated environment with capital requirements and the stress testing we have. The interesting challenge for us is that this gets into the middle-market business, which has largely been untouched by the capital market side. It's the first time that we have to take it seriously as a potential competitor."

To be sure, some private markets have been looking a little peaked these days, crimped by higher rates. And it's true that even with half the number of public companies in circulation, their total value has grown from $25.4 trillion in 2015 to $61.5 trillion today, which still dwarfs the private markets. But private markets are accelerating faster -- and much of the growth in public markets comes from a handful of stocks.

That last point has caught the eye of a primary architect behind the rush into private investments, Apollo CEO Marc Rowan, who along with other chieftains of big PE firms, like Blackstone's Steve Schwarzman, aren't coincidentally the new kings of Wall Street.

"We've seen a [public] market that's been becoming increasingly concentrated and indexed and correlated," Rowan tells me. "That has made more and more of what's in the public markets beta [average market returns]. To the extent investors want alpha [excess returns], and most investors do, they have had to step outside of public markets into private markets. We grew up as investors thinking that private was risky and public was safe, but what if that's not true anymore?" he asks me rhetorically.

Apollo is walking the talk, telling investors last week that "we have kept our foot on the gas, with our funds committing over $2 billion of capital across four M&A transactions," according to The Wall Street Journal. Meanwhile, Rowan recently took on the additional role of Apollo's chairman. "It's not a compensated role, nor a role I necessarily wanted," he told me. "We had an excellent chairman who I miss a lot, named Jay Clayton. Jay went back into public service for his second stint. His office [was] a few down from me."

Appointed interim U.S. Attorney for the Southern District of New York by Trump in April, Clayton's first public service stint was as chairman of the SEC during Trump Part 1. Revolving doors have been prevalent in politics even before Theophilus Van Kannel patented the first one in 1888, but Clayton provides a compelling case study, and helps illustrate the shifting dynamic between private and public markets which began many years before Atkins' time.

Earlier in his career as a lawyer at Sullivan & Cromwell, Clayton and his firm represented old Wall Street (Goldman Sachs and Brown Brothers Harriman) and new (Bill Ackman's Pershing Square, Paul Tudor Jones of Tudor Management, and Oaktree Capital Management). Clayton was also an investor in funds managed by Apollo, Ares Management, Warburg Pincus, and other private-market players.

During Clayton's subsequent four years as SEC chairman, the number of insider trading enforcement cases fell but overall enforcement actions climbed, which included actions against Elon Musk and crypto firm Ripple. (The latter was represented by fellow former SEC Chair Mary Jo White, after she too traveled through the revolving door. That case was finally settled last month.) During Clayton's tenure, however, there was a paucity of big-picture strategic initiatives when it came to the issue of advancing private markets. The same could be said of Clayton's successor Gary Gensler.

With Biden's election, Clayton returned to Wall Street, which is when Apollo tabbed him to be nonexecutive chairman. He also joined the board of CFGI, an accounting and advisory business owned by private-equity companies Carlyle Group and CVC Capital Partners. And now Clayton is back in the public sector as a U.S. attorney, where he is busy prosecuting bad guys like "serial fraudster Dr. Cash." That's all well and good, though I still wondered about Clayton's take on public versus private markets. Unfortunately, a media contact declined a request to interview him. (Perhaps the reticence speaks to Clayton's private side.)

It's true that reports of the death of public markets are greatly exaggerated. Ian Lowitt, CEO of financial services platform Marex, took his company public in April 2024 and its stock is since up 124%, versus 20% for the S&P 500 index. "As a public company you're scrutinized very intensely," he says, "and a lot of constituencies take a great deal of comfort in that." There's also no need to lose sleep over how the growth of private markets affects JPMorgan and Bank of America -- they will adapt.

But what about systemic risk and the little guy, who is increasingly being sold private investments? Answer: No one knows because we haven't been here before -- or at least not for 100 years, back to the pre-SEC days when Charles Ponzi, whom Barron's helped expose , ran riot across the land.

To be fair, Bernie Madoff, whose crime was at least 50 times greater in current dollars, did his defrauding when the SEC was in full flower. (No amount of oversight will eradicate greed.) Still, as Arnholz tells me, "it would be a regulatory dropped ball if the SEC doesn't keep a careful eye on what's happening here." That, and Everett Dirksen would have wanted someone to address the pachyderm in his hearing room.

Write to Andy Serwer at andy.serwer@barrons.com

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(END) Dow Jones Newswires

June 06, 2025 21:30 ET (01:30 GMT)

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