All-SEC First Team

Disclaimer

In 1979, Gary Gensler graduated from the Wharton School at UPenn with a BA and MBA degree. He went on to join Goldman Sachs in their investment banking division where he would rack up accolades left and right.

Gary was one the youngest Goldman Sachs partners in firm history at just 30 years old. The Goldman partnership is one of the most coveted on Wall Street, and perks include:

• Annual salaries of $950K with bonuses that dwarf the salary

• Opportunity to invest in Goldman’s private equity funds, hedge funds, and more

• Special bonus pool reserved for the ~500 partners (out of ~50,000 employees)

Gensler was part of a team that advised the National Football League in securing the most lucrative television deal at the time, a deal worth $3.6B. He ended up being named co-head of finance at the firm. However, his 18 year Hall of Fame career was cut short after President Bill Clinton appointed him to the Assistant Secretary of the Treasury. Since then, he’s made his way up to chair of the Securities and Exchange Commission.

Gary’s current role is quite different from his start. For lack of a better comparison, imagine if Michael Jordan hung up his Washington Wizards jersey in the early 2000s and decided to become a referee.

According the SEC, Gensler’s tenure is one of the most active of recent times and he has proposed more rules than modern predecessors, sans Mary Schapiro (2009-2012)

• Mary Schapiro (2009-2012): 88 proposals in 3 years

• Gary Gensler (2021-present): 66 proposals in 3 years

• Jay Clayton (2017-2020): 42 proposals in 3 years

• Mary Jo White (2013-2017): 37 proposals in 3 years

These proposals span all areas of financial markets including crypto, corporate carbon emissions, private equity, and hedge funds… Critics complain that Gensler’s corporate work ethic has carried over from Goldman to the SEC offices.

Making Private Matters Public

Regardless of one’s personal opinion on Gensler, the SEC, or market regulation, an interesting development to keep an eye out for is his focus on increasing transparency and disclosure in private markets.

As summer 2023 was winding down, the SEC instituted new rules to govern private fund operations, aimed specifically at private equity funds, hedge funds, and venture capital funds. They mandated:

• Quarterly reporting on fees, expenses, and performance

• Annual audits for each fund

• Equal access to fund information for all LPs

• Fairness opinions for secondary transactions

• Consent from LPs before charging the fund for investigations

The rules were met with rampant complaints from Wall Street, with lawsuits and legal action for good measure.

As we noted back in September, the push to make private markets highly regulated and transparent seems to be well-intentioned, but it disproportionately affects smaller managers.

While megafunds can afford to increase compliance costs without blinking an eye, lower middle market funds will need to adjust their operations significantly to operate under new regulations. Hence the lobbying efforts from the financial industry.

Another interesting plot is the increasing number of “public VC funds”. A number of funds are taking advantage of a fund structure that is semi-public in nature, with high liquidity, no accredited investor restrictions, and no limit on the number of investors in their fund. More on this in a future memo…