NASAA’s Non-Traded REIT Proposal, With Anya Coverman

NASAA recently released proposed revisions to REIT regulations, beginning a 30-day public comment period that was originally to end on August 11. But industry veterans argued that some of the proposed revisions aren’t all they’re cracked up to be, and so NASAA recently extended the REIT commend period to September 12.

Anya Coverman, senior vice president of government affairs and general counsel at the Institute for Portfolio Alternatives (IPA), joins the show to discuss the the NASAA’s proposed revisions, and why the IPA strongly opposes them.

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Episode Highlights

  • Background on how non-traded REITs are regulated, and how current regulations are out of date.
  • Why NASAA’s recent proposals are less of a revision, and more of an addition.
  • Several unintended consequences of the proposed new regulations (and how these consequences could hurt retail investors).
  • Why the recent proposals from NASAA are pertinent to other product types beyond non-traded REITs.
  • How investors and industry stakeholders can take action to join the IPA and make sure their voices are heard.

Today’s Guest: Anya Coverman, The Institute For Portfolio Alternatives

About The Alternative Investment Podcast

The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.

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Show Transcript

Andy Hagans: Welcome to the Alternative Investment Podcast I am your host Andy Hagans and today we’re talking about proposed new regulations on non traded REITs.

And you know we’ve discussed this a little bit on the show and prior episodes and I’ve teased that we’re going to have a representative from the IPA on the show to discuss that.

So I’m very pleased that today we have on your Anya Coverman, who is senior Vice President of government affairs and general counsel at the IPA joining us on the show. Anya, welcome to the show.

Anya Coverman: Andy Thank you so much for having me it’s a great topic and a very timely and important one to be discussing today.

Andy Hagans: extremely timely yeah it’s funny we originally scheduled to record before the initial comments period was going to end on August 11 and then we were going to reschedule that and then actually the comment period got extended to let’s see, is it September 12 is that the new date.

Anya Coverman: Yes, and and I’ll just make a quick comment about that the IPA has been so this this proposal has pretty far reaching consequences, so, while it’s a proposal.

that it has a title of reads it really spills over into many other different types of products and there’s.

And it both impacts, of course, the asset manager space, the the distribution side of the business and whether it’s a broker dealer or registered investment advisor.

What investors are able to access so there’s a large coalition of groups that added their name we’ve been working very closely with them spanning you know real estate.

Retirement financial services, the BBC groups that added their name to this letter and said, you know, in the middle and height of summer for such a large and like far ranging proposal.

30 days is not sufficient and we requested an extension.

NASA doesn’t always grant extensions, but they did issue an announcement that they they you know understood the concerns and they gave industry.

An additional 30 days so now, the new deadline is Sep tember 12th which is right before the NASA conference.

Where and actually right before the IPA conference which happens to be only a couple days later in the same same location.

of all things, and this will be a time where NASA will likely with their members, discuss and hopefully discuss the feedback they get from the close of the Comet public comment file.

Andy Hagans: Sure yeah and I have to say I followed this new story in different publications and some of the statements from NASA and their representatives to me seemed pretty combative so.

I hope that they’re willing to listen, because, as you pointed out, there are a lot of stakeholders here right it’s not just fund sponsors or asset managers, this is this is going to touch broker dealers ra a’s.

And also individual investors and.

You know, as far as our listenership.

Of this show I know for a fact we have multiple fun sponsors that listen and I know for a fact that some of them are already members of the IPA but before we get into the topic.

Could you tell us a little bit about the Institute for portfolio alternatives what you all do on behalf of sponsors and and what your role is at the IPA.

Anya Coverman: Sure, so my role i’m the senior Vice President of government affairs and general counsel at the IPA the IPA has been in existence for over 35 years.

And our membership, we have you know we like to represent the, of course, the alternative industry, which is a large, which is a large and wide group of of.

Constituents so, but our Members are operating in the private and public real estate.

credit and other real assets that’s really the core of our membership, but we represent both asset managers, you know distribution partners, as well as.

Industry partners so that can range from law firms to accounting and a due diligence firms and technology firms.

And our role, you know our as an association our role is to help create a better operating and business and regulatory environment for our Members to be successful.

And we certainly provide a lot of education and networking opportunities and we host many different types of conferences throughout the year.

We have due diligence sessions, but again, the topic for today’s discussion really involves all the the the.

regulatory and not for this discussion, but we also do a lot of legislative advocacy, but that is a core part of.

The mission of the IPA the mission of any good trade association is is is to be on the forefront of regulatory threats and changes and opportunities and so that’s that’s a big part of what we do.

Andy Hagans: yeah absolutely and I think you know a lot of sponsors that i’ve spoken with they see the benefit of membership and the IPA and honestly I think it’s moments like these, like the exact topic that we’re discussing right now, when it’s very clear.

That that we need a voice in the industry, we need leadership and industry to you know help make stakeholders voices heard.

So, so I want to thank you for the very important work that you’re doing, especially right now let’s actually back up a step and so we’re talking about NASA has proposed revisions.

Non traded reads a regulated, but, as we were talking about before we started to record today’s episode there’s really a larger context here.

sushi could you kind of walk us through what what’s the larger context How did we get here, where we are we’re nasa’s proposing all of these changes to how non traded rates are treated and we have whatever 20 days here 19 days left even comments on it How did we get here.

Anya Coverman: that’s a great question and incredibly important when i’m so glad you asked that because that has gotten lost in all of the the noise around this proposal.

Which is, these are so the the NASA non traded read guidelines were originally drafted in 1996 and then they were updated in 2007.

And they are now significantly out of date right that the product has evolved, the guidelines reflect a product that is no longer.

A product of a decade ago that’s no longer be is no longer active, is no longer being sold it may exist, some of the old legacy lifecycle reads in some portfolios, but largely the new product that is being offered today is called an na VI read.

But taking a step back to the guidelines, so these four pieces that are proposed that are in this proposal are not revisions to the guidelines.

They are additions to the guidelines, so you will hear a lot from NASA that they are when a justification is that the guidelines are out of date and they need to be updated for current standards but that’s not what that’s not what’s happening.

There are four new additional requirements dropped on to already out of date.

Guidelines, or what we also call statement of policy.

And so it’s it’s sort of paradoxical that you have really heavy regulation for offerings that are no longer being offered.

And you know they’re just not accounting for that the sea change the change in the landscape that anyone in this business recognizes and that the IPA has made a concerted effort over the last few years to.

inform NASA inform individual States about the changes in the industry, but you know, this proposal does not reflect that and, frankly, that you know our efforts have really not there, they haven’t been heard and listened to and that’s incredibly important, in discussing this and um.

Andy Hagans: yeah sorry to interrupt.

It yeah some of the statements from NASA.

It kind of reminds me of like a White House press Secretary or something it’s they almost sound hostile like.

Like a jury’s already made their mind before they even go to the the jury room cat is the kind of.

vibe i’m getting and.

And like you said this product has changed so much.

In the interesting things in me with with nap rates and just non traded rates in general.

The invisible hand the the free market has actually done so much these products have improved so much there’s so much of a better.

Value proposition for for the retail investor for advisors and are able to place their investors into these products.

You know there’s all sorts of intermittent liquidity like and alternatives in general, but also in the non traded Greek world.

Where there’s increased liquidity even even outside of the publicly traded markets, and so the private market.

has improved this product, or rather I should say this product is is evolved in the private market to be so much better, since even five years ago, let alone 10 years ago I forget the exact year you said, with its regulations came out.

But like you said they’re regulating something that no longer exists.

Anya Coverman: that’s right, you know.

Something that gets lost is, these are publicly registered, first of all they’re probably registered programs.

They have an incredible amount of.

Transparency, because and they you know, a file their 10 k’s and 10 cues and a case and take strict liability under the securities act.

And they are transparent, because reads, are you know, subject to the S 11 filings and and state state disclosure requirements they’re being sold by the largest asset managers in the world.

Andy Hagans: They are literally yeah literally that.

Anya Coverman: Is what why our houses all the large major wire houses are.

selling this product, and a great statistic, and an important one, especially for your listeners is 64% of sales today are no load shares and so you know that is.

Presumably through that you know fiduciary channel through an investment advisor channel that would you know in this is due to the fact that there are now multiple share classes and 35% are in low load shares that’s a huge and important statistic.

You know there again so they’re a SEC registered their their subject to an incredible amount of disclosure and the new the nav re product is has low fees increased transparency.

The liquidity programs that are based on the Net asset value calculation, which are pretty much my monthly redemption program sometimes quarterly and, frankly, sometimes daily like a mutual fund.

Andy Hagans: Well, I exactly so that this is not the totally illiquid you know you’re locking your money up for five or seven or 10 years product of of decades ago, and one other point I want to make is.

we’ve talked on this program about publicly traded reads are going private and we’re not seeing as many ipos in the publicly traded read world because you know the markets are discounting publicly traded reads.


You significantly it’s removing the incentive essentially to ipo and so, in some of these real estate sectors.

Non traded rates are really your only option to invest if you want to invest in that read rapper.

And so now by you know some of these proposed revisions and regulations we’re going to be if they go through with this they’re going to be totally closing off certain real estate sectors.

From the retail investor because, because the public the public markets, you know there’s this trend of the rates in the public markets going private.

And so I think that larger context has to be said, as well, I mean from the from the from the perspective of the retail investor and their fiduciaries and our a’s.

I think we should be moving towards more choice and absolutely education and transparency.

But it makes zero sense to me to be removing choices from investors, when some of these products might be literally their best option um and I wanted to dive in a little bit to what these proposed revisions are and if it’s if it’s Okay, I want to take a one by one, so I have, I have this.

Anya Coverman: And I make just a quick point and.

You said something really important, which is.

What we’re dealing so nav reads are are tied to value not price and not fluctuation of the stock market right, and this is a time of market volatility and.

You know in high inflation and, if you look at sort of the tenants of modern portfolio theory, this is exactly the time that you want to have.

You know, diversification of assets in your account and you want to have opportunities and public non traded reads are a way for investors to get access to private real estate.

In their portfolio and have that less correlation to swings of the public market, so I wanted to emphasize that point because that’s.

incredibly important and it’s an interesting time for this proposal to come out when this is exactly the type of product that gives you that diversification of assets and you know, a hedge against inflation.

Andy Hagans: Absolutely, and from an ra perspective from a perspective, I mean i’m not an ra but from the perspective of advisors.

Who you speaking through every market cycle when you have huge draw Downs your one of your biggest risk is behavioral risk right as a client is not comfortable seeing my portfolio is 25% smaller than it was a year ago, like in 2008 2009.

we’re just everything got hammered or during the current.

drawdown and I think we’re seeing now with these increased allocations all it’s, as you said, they’re linked to value not necessarily to price.

And so, from an investor standpoint as a retail investor I know if i’m invested in a private placement offering ultimately I own a share of these underlying assets.

I own a teeny tiny little share of these apartment buildings, so the market zigs and zags and goes up and down that doesn’t change what I own.

I own a share of these assets.

So I think you know non traded alternative investments, this whole world, I think we’re seeing.

For a lot of investors that helps us sleep better that we don’t necessarily have to see our entire portfolio repriced every second of every market day and so again, as some of these rates are going private, to me it just makes zero sense.

To be discouraging that, and so the original regulations are now decades old, and these are there are four main proposed revisions and i’m going to link this in the show notes.

it’s an article on investment news COM and let’s I want to, I want to go through all four anya and get your your personal opinion and or ipas opinion.

On these So the first reform would include raising the broker standard of conduct to incorporate regulation best interest, what do you think about that one.

Anya Coverman: Well, so this is a great discussion for your listeners and.

If we look back at the justification, the proposal and i’m going to call it, not call them revisions i’m going to call them additions.

Okay they’re just not revising is already out of date but.

Regular so One of the justifications in fact a very big one, because there’s very little evidence and data in the proposal to to justify why it has you know, been proposed to the public and there’s certainly no cost benefit analysis done or economic analysis and.

So one of one of the few justifications, it has to do with the Federal regulation best interest interest conduct standards.

and NASA did a survey, they did a couple surveys over the last couple years and report on regulation best interest which, again, you know impacts broker dealers in some aspects that will impact investment advisors as well and.

it’s important to realize regulation best interest is product agnostic and it is a standard for the you know sell the sale of products, it is not about the product itself and so.

nasa’s saying well you know we’re we’re we’re basing the need for this this proposal, which includes confusing and duplicative and additional conduct standards that that, by the way, don’t track all of REG bi as.

That there’s a need to do this because somehow there has been a flaw in Regulation best interest because of product.

But again, we need to remember that regulation best interest has nothing to do with product and we actually worked with a highly recognized an expert in survey analysis that.

For a different discussion, but did a very long and thorough analysis that their rent best interest surveys and reports were flawed because they had.

They didn’t track that right regulation best interest and they were really again product focused and had an unstated.

Non objective agenda, so the the proposal, so the proposal proposal and, and you know not to veer off topic too much, but the proposal does talk about regulation best interest they talk about some interesting statistics Those are all about you know.

The distribution side of the business that NASA does not regulate that’s about you know misconduct or.

You know sales practice abuses or you know, sometimes it’s only a limited few number of firms.

Andy Hagans: So so on yeah i’m sorry to interrupt, but it seems to me that, then this is just.

it’s kind of like a way to shoehorn in REG REG bi stuff.

In a specific.

product regulation, if you want to deal with REG bi or change REG bi or how any of these professions are regulated or their standards of conduct then legislate that or regulate that in the appropriate channel.

Anya Coverman: form.

Andy Hagans: Here and shoot shoehorn it into a random yeah.

Anya Coverman: Exactly, and you know they don’t point to product failure cases they’re not pointing to you know.

there’s they’re not making any attempt to justify any part of the proposal for some incremental investor benefit and there’s a very big difference on a failure of a potentially a REP and a failure of a product.

You know, again, that the cases in the in the data is not germane to the to the product itself.

And you know we’re dealing with a situation with were over 97% of redemptions were met NASA talk a little bit about redemptions in the most trying and and and difficult time of.

You know our financial history during the pandemic to me that that you know that doesn’t that’s not indicated indicative of a failure of any product in fact that’s a that’s a great example of the product holding up as it’s designed.

Absolutely, so the you know the the regulation best interest you know we already have the REG bi requirements or fiduciary requirements for investment advisors.

This proposal is creating potentially for new conduct standards they’re weaving in Orissa requirements REG bi fiduciary requirements of investment advisors.

into different pieces of this proposal, and again it’s remote it’s important to remember NASA intends to use this as a template for other product guidelines they say that in right in the proposal.

And that that creates confusing and conflicting requirements for investment advisors for broker dealers those it creates requirements that will be subject to State law interpretation and.

There is nothing there’s nothing in product guidelines that justifies or necessitates any changes because of.

conduct standards for those that sell products there’s nothing so that that’s you know, a flawed assumption a flood statement.

Andy Hagans: Absolutely, I mean it, you know again i’m not an ra i’m not an advisor.

i’m not a registered REP but to me it like if i’m an ra and I have a fiduciary duty.

I want to know what my duties are what my legal obligations are what my responsibilities are i’m thinking about those in terms of my client in terms of my clients portfolio in terms of my clients investment objectives.

i’m not thinking about my standard of conduct changing on a product by product basis where I have a fiduciary duty and reference to stocks, but not to bonds and then different duties, you know.

Like boy that’s just a way to treat a message I mean I I sort of get the feeling.

How do I state this it almost feels like a little bit of a bureaucratic turf war, where maybe some regulators who are supposed to be regulating a specific thing.

or not willing to stay in their lane and regulate the specific thing and the way that they’re charged to by law, but instead are trained to.

You know sort of.

Anya Coverman: regulators have brought enforcement authority.

authority to bring cases on fraud or other, you know.

Bad actors and so there’s nothing that has limited them if there is a bad actor and no one can Jones bad actors to bring.

Enforcement cases and and frankly states do if you, but if you look at nasa’s enforcement report.

you’re not going to see reference to these products over the last several years it’s in so it’s interesting that they’re proposing something but there’s no citation to nasa’s you know enforcement report.

And that you made a great point so investment advisors and Robert Harris broker dealers, they are the ones that that know the investment objectives, the liquidity needs risk tolerance age, you know everything else that holistically goes into an investor’s profile.

It is.

Frankly, somewhat paternalistic to or a regulator to walk into that decision and and and and make those determinations for the investor and the financial advisor that they’re working with.

You know, certainly NASA does not know that type of information and frankly sponsors asset managers aren’t there to.

make those determinations either, and for those distribution partners, they are not only having to track now these new conduct standards that are.

You know, going going to be different and Messier and impose other obligations across the board, but we’ll get to this in a minute, but they are going to have to monitor concentration limits with no time color that have to do with reads, but all other types of products.

Andy Hagans: Right and I got I have to interrupt there because probably the most interesting one that just jumped out to me.

And we’re jumping ahead now, this was the the I think the third or fourth of the proposed additions I won’t say revisions.

So it’s it’s a purchase limit a proposed purchase limit on non traded reads and other illiquid direct participation programs.

That do not exceed 10% of an investor’s liquid net worth and so here’s the thing like I, I can see the underlying theory of holistically as a society as a profession as an industry, we want investors to have appropriate portfolios.

We don’t ri a’s and asset managers, as a group we don’t want investors.

To be too highly concentrated in a way that’s not going to benefit them.

But I want to point out, even outside of alternative investments certainly outside of reads, but even outside of adults.

You could go into the stock market exchange traded funds, I mean I I started my financial media career in exchange traded funds I love etfs etfs are great they are tool that can help an investor achieve their goals right one of my favorite ETF companies is direction.

They have leveraged in inverse etfs they have two X leveraged etfs they have three x leveraged etfs those are not exchange traded funds that most investors should necessarily be investing in that’s a very extreme example.

But those types of products are not regulated, unlike a product level right they may interact with an ra spray instance fiduciary standard.

um but, but even let’s take publicly traded stocks and investors should should probably not have 80% of their net worth in a single stock and tesla stock.

or in a technology stock and so when you want to get specific I could just think through a million a million in one.

Individual portfolios, where there is arguably too high, of concentration of an individual security right but, but then we’re going to get into talking about portfolio construction and.

All sorts of theory and that’s a fun conversation to have what I don’t understand is picking one specific product type in our random arbitrary number like 10% and this this product type is not even anywhere near as risky, as some of the other things that I mentioned for examples.

So we’re just gonna it seems to me like we’re going to randomly regulate this one product I with an arbitrary number.

It just seems so silly and frankly pointless to me that.

Anya Coverman: there’s no other.

Regulated federally registered product that limits the amount of investment, an individual can make in any single vehicle or an entire industry.

Right, and you know i’m.

Sorry, I lost my train of thought for a minute, but there’s been a private placement world.

Are you certainly there are limitations, because these are not regulated products and.

You may have really sophisticated private offerings and then less sophisticated private private offerings but, again, to our conversation earlier.

there’s no other registered investment product that has this type that that includes any type of limitation and when you’re walking through the definition, first of all 10% is an arbitrary number why 10% and there’s no discussion in the proposal of why 10% makes.

sense, and I would start with you know what what I did, which is why do we have this limitation in the first place for regulating product, but then again.

You know 10% is arbitrary and it’s 10% of your liquid net worth liquid net worth is nowhere else in the federal securities laws liquid net worth is a concept, where you know.

Andy Hagans: So on yeah i’m sorry to interrupt the regarding the liquid network thing, if I understand the definition of an accredited investor involves an investor’s net worth excluding the primary residence, but even that definition doesn’t specifically reference liquid network is that right.

Anya Coverman: Yes, that’s right, and you know liquid net worth is your ability to withstand it’s a it’s a look at your monthly expenses.

ability to withstand sort of a sudden financial loss, the the, the proposal is look it doesn’t look at your just overall financial net worth and income, the way you see in other.

facets of the securities laws and so.

You know, you could have a $500 million business or own a huge portfolio of reads and none of that would be.

counted in your liquid networks, so it liquid net worth itself is arbitrary, as is the 10% and the other thing is the definition is 10% of your liquid net worth.

In the knowledge should read entree to read for its affiliates or other or direct participation programs so affiliates, this is a big concerning word.

Because you’ve got major asset managers that have gotten the national product national distribution, you have major asset managers that have reads and interval funds and mutual funds.

And affiliate captures all of that, so the definition of that would mean you may have 10% in the read the non traded read, but now you’re excluded from buying other sleeves other product offerings the mutual fund or etfs that’s offered by that.

Andy Hagans: Oh wow so that could.

That could hit these large asset managers that have index funds etfs on treated reads.

There obviously I do anything wrong they’re obviously not even from nasa’s point of view that probably wasn’t what that proposed edition was driving at is just a an unintended side effect.


Anya Coverman: it’s a lack of understanding of the of the current of what the market looks like today, that is a huge reflection of what the market is and who is who are the sponsors.

And asset managers in the in the in the in the in our space and, frankly, they also referenced the word direct participation Program.

don’t actually define direct participation program the interest definition of direct participation excludes rates so.

While they may you know there’s some common understanding of what that should mean it’s not well defined and affiliate is not well defined it.

they’re trying to regulate products that are preempted from state oversight because of how broad that definition extends so you know there and again, because these are national products and subject to national distribution channels.

it’s an impossible task to be.

And what I say one other important thing is an impossible task to be monitoring, you know the the the.

concentration limits in all 50 states and there’s a ton of discretion built into this proposal for States they talk about it being uniform, but the language itself gives states significant or discretion in fact him some states have.

concentration limits that they impose on sponsors today which frankly the sponsor has no control over they can’t monitor the the you know the sales to any one investor of many different products and even those are are are implemented on a non uniform basis.

Andy Hagans: I mean that just sounds silly to me, what is the sponsor supposed to require that investor upload every single asset, they own or something prior to investing in there, that makes.

It that’s not workable it’s that, even if it were a good idea, so impractical it can’t occur in reality right.

Anya Coverman: yeah it’s not a sponsor some of them are required in a number of States today to to.

Put a concentration limit on the prospectus, but they don’t have any control over that but, again, the States don’t regulate.

The end hat they don’t have this authority to regulate the distribution channel in this manner so.

The only place that you that they have that authority to control it is to tell a sponsor that has that has no ownership, no control over this.

You know, put this into your prospectus and have this be a requirement for sales of your product.

The other thing is there’s no time color on the concentration limit there’s it it’s not at the time of the transaction, so you know if the market is swinging up and down your your 10% can go up, it can go down.

A firm is not going to tell an investor, you now have to liquidate your holdings, you know you’ve bumped over the the the the the 10% limit and so for.

Andy Hagans: I would affirm even know that, how would they possibly know they couldn’t they wouldn’t have access to all of that information it’s it’s totally.

unworkable and I think Okay, the most concerning thing here, I think, for a lot of our listeners, a lot of our viewers that you’ve mentioned.

That this is intended to be a template that is going to be applied beyond non traded read so.

You know if you’re an ra listening and you’re maybe placing clients into a lot of other types of alternative products or maybe your sponsors listening and.

You know you have a product that’s not in a non traded rapper but it’s in a different sort of rapper this should probably concern almost everyone because it’s probably it’s probably not going to stop just here with non traded reads is that what you’re thinking on you.

Anya Coverman: Well, they say that in the proposal, though, so they say we intend to use this as a template for other types of products.

That subject to state review and then they list a number of those different asset backed securities and vcs and other you know other products.

That again states have purview over so you know that they’re they’re channeling to the industry what their future intent is based on these four four pieces.

And then, of course, as I mentioned, the concentration limits are so broad if you’re dropping this into other product guidelines that means it’s the fact has it has such a ripple down effect to other parts of the financial system, you know and.

You know we’re talking about there’s been a huge growth just alone in the non traded read industry, you know there.

Is high projections for growth of the next five years, this is about the health of the financial markets and this product, if you look at the space you’ll get that sponsors that have come into the space.

You know, of course, we hear about sponsors interested in the space very large global asset managers they’re playing in a really important role in in that, in that you know health instability of our financial markets so.

Andy Hagans: But also giving retail investors access to some of these markets because, again, a lot of these.

publicly traded rates are going private and some of these rules are going to really limit investor access, so they also had.

Was there a net yeah there’s a net there they’re changing they’re proposing to change the net income.

And network threshold so they’re literally going to make some of these sectors that now in read form only exist and non traded read form.

they’re going to really be limiting investor access to those and if that’s if that spreads to other types of alternative investment.

offerings and you know you mentioned BBC is I think that’s another example of a rapper that what existed 20 years ago or 10 years ago is not relevant to the.

version of vcs in the marketplace, just like with non traded reads so that’s really concerning To me it seems like NASA is not really up to speed on the current offerings and how they how they work in reality in the marketplace.

Anya Coverman: yeah, the proposal does not reflect that because the guidelines that were last update in 2007 don’t don’t reflect that that that additions that they’re suggesting.

don’t reflect that don’t reflect the current state of the market, our goal is to better inform we We appreciate the role of I should say we appreciate the world state regulators and they have.

You know incredible enforcement authority and they play an important role, but this proposal has far reaching consequences, and it is.

You know there’s a lack of appreciation and understanding of the product, today you mentioned BBC is because a multi year class relief now there aren’t any vcs that is changing the landscape so.

Our goal here is to let we’re writing a very detailed comment letter but to let the the NASA in the States know we have a lot of problems with this proposal, and why to really explain that and hopefully come to the table, and you know.

Try to be heard, but I wanted you mentioned the investor network and an income limitations again.

And i’ve mentioned this a number of times today, but these are federally registered products so for the for the benefit of federal registration, there are no investor.

Ownership requirements, but States impose individual investor network and income limitations to buy this particular product that is both federally and state registered.

And they are indexing back backwards to inflation to 2007 those investor income in network numbers.

And even the SEC over you know they they’ve talked about the accredited investor definition for years and there have been some updates.

And they first of all have not updated the individual network and income limitations, but they certainly have not index them backwards to inflation, the accredited investor.

numbers were proposed in 1982 and the SEC hasn’t taken that position so States really are setting some precedent that we don’t see our federal regulators setting and again, these are the one of the most regulated products, there are because they’re dual regulated so.

that’s some of our concerns about the you know, income and network numbers and in some of the changes that they’re proposing.

Andy Hagans: yeah and you know I like that little walk down history lane of I wasn’t familiar with the date of the definition of an accredited investor, but if you look at alternatives really big picture and their growth path in the last 40 years.

yeah um you know we started they started really becoming I think popular in the imagination of a lot of investors.

When retail investors learned about David swensen and the Yale endowment fund and they sort of grown in the popular imagination.

But it’s been technology has been a huge disrupter and we’ve seen more and more transparency.

And right, not everything happens in a second but little by little, in almost every segment of the alternatives universe, over time, we see more and more transparency.

More and more, accessibility and so it makes sense to me that the definition of accredited investor wouldn’t be indexed to inflation, because these products are becoming more transparent, they are becoming.

more accessible, and so it doesn’t make any sense to me that that to take the tack that this whole segment of the investment universe, which by the way, in many cases will outperform.

The liquid markets with less volatility we’re going to limit this whole part of the investment universe to only the rich.

And we won’t let middle class investors access it, even if they know real estate well, even if they’re very comfortable with real estate, even if they’re comfortable investing in non traded reads they’re not allowed to.

It just makes zero sense to me that larger context of.

You know, to sort of cheerlead for the industry for a minute there’s so much more transparency than there was.

A decade ago, let alone, two or three so many frankly just better products that are a better offer more value to investors.

And, of course, like you, I can appreciate the role of regulators federal regulators and state regulators 100% but it’s also okay to say look these rappers are good thing these new products are good thing and and the fact that these products are better we want them to be more accessible.

Anya Coverman: that’s exactly right, you know we’re proud of changes, where we are incredibly proud of you know, positive evolution investor friendly features.

In the products and that’s what you have today, and you know we could go down a long discussion about we that you know investor standards for private programs, and whether that’s appropriate, even today, with more disclosure and more.

Transparency, but these again, these are private programs, these are federally regulated and state regulated programs and investors purchase their you know.

They access them through through the broker dealer channel that has conduct standards, the investment advisor channel that has conduct standards and those intermediaries have.

Regulators that oversee them and impose a lot of obligations when you’re dealing with products that may be more complex or different types of products and so.

You know there’s if there’s a concern that maybe something was not sold properly there are regulators to have those discussions with and again it’s it’s not.

you’re circling back to this it’s not germane to the product and what we want to see is this positive evolution and in more asset managers coming into this space.

And feeling that this would be a great opportunity for investment for investors, excuse me, you know, to bring diversification and then, when the investor, you know works with their financial professional they can make those determinations based on what their needs are.

Andy Hagans: Absolutely, give the people what they want, and they want navarrete.

On that note sunny.

IPA is doing a great job of being a thought leader in this book, but where can our viewers and listeners go what can they do.

To add their voices to make their voices heard, especially during the comment period before September 12.

Anya Coverman: Absolutely, so the IPA has an incredible grassroots tool, it is a prefer if you go to our website, we have a link on there, called the NASA hub it’s information about the proposal information about.

News articles this podcast will be on there and comment letters that are submitted any additional information that we can provide the public about this proposal and for them to take action and, on that on that.

website page, we have a take actually, as I said, it’s a grassroots tool so it’s a pre filled letter you can customize it and that letter will go direct we courage customization that is important.

And that little letter will go directly to NASA but also your home state securities regulator because.

Certainly, this is a NASA proposal, but ultimately it’s a proposal that gets adopted sometimes automatically in the state securities.

For in your state your home state security by your home state securities regulator, and so what the other thing we’re encouraging is.

Make your voice heard, if your firm can write a letter directly to NASA.

Do that I pay can certainly work with you it’s important for NASA to here with all stakeholders that are going to be impacted if you have a relationship with your home state regulator talk to them about this proposal reach out.

So engage engage is the is the best thing I can say engage through your your local Chamber engaged with your regulator use our grassroots tool.

or write your own letter and all of that you can find all of that information on our website we’re keeping it.

Up to date daily we’ve already sent out almost 1000 letters not we but our members and the public that have used the grassroots tool.

there’s been almost 1000 letters that have gone out already so we’re very excited about that just make your voice heard, I mean that’s what that’s that’s the purpose of a public comment proposal.

And again, we are happy there was additional time use that additional time wisely, you have until September 12 to do something.

Andy Hagans: yeah and you know what i’m counting on the Alternative Investment podcast listeners and viewers to hit that 1000 threshold let’s let’s smash through that thousand letter threshold and i’ll make sure to link to that web page at the IP website.

In our show notes so.

Anya Coverman: i’m referring actually can I add one more thing.

Please come to the IP a conference our Conference is two days after the NASA Conference, where they will be presenting discussing on.

The proposal many IP Members will be at the NASA Conference, we are going to be holding special sessions at our Conference.

To talk about in real time, what did we learn from now from state regulators what’s going to happen next, what is our strategy, how do we, you know.

That the ipas hoping to have some meetings with NASA leadership leading up to that so a plug to come to the conference, it will be again real time and an actionable discussion on what’s happening and what to do next.

Andy Hagans: Yes, and all stevie I should mention my partner Jimmy and ltv we often have a presence of these conferences, so if you see us there.

Please don’t be a stranger coming introduce yourself and let’s talk and so i’ll be sure to link to the conference, as well as the grassroots page in our show notes and those show notes are available.

At ultra db comm slash podcast anya thanks again for coming on the show today and shedding light on all of this regulatory information.

Anya Coverman: Absolutely well Thank you so much for having me and have, including the ips perspective we’re just happy to have your listeners get some.

real insight information about what’s going on.


Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.