Washington regulators have come up with another way to marginalize the ordinary retail investor by precluding them from participating in some of the more lucrative equity and bond markets. Under present market conditions people may scoff at the notion of investing in the stock or bond market, but no matter how the media plays it up with scenarios of dooms-day recessions, it is only temporary. A bull market will return one day. But JoeSixpack and his IRA or 401K may miss some of the better performing companies that go "semipublic" when the markets return to their glory of just even a few months ago.
Securities & Exchange Commission Rule 144a allows companies to raise capital without having to comply with certain regulations (some of them stupid, i.e., Sarbanes-Oxley). The downside for us simple folk is the securities can be sold only to sophisticated investors, such as hedge funds and investment advisers, who have to have a required minimum of $100 million under management.
"Through the first nine months of 2007 companies raised $300 billion in 144a equity, compared with $215 billion for public markets," reports Forbes, which ran a story on the 144a rule in its Jan. 7 edition. Most of these deals were done by companies that were already public, but there is a provision in the rule that allows for PIPO (Pre-Initial Public Offering). Forbes also found that two years before the useless Sarbox legislation went into effect in 2002, there were only two PIPO deals. Since then there have been 83, raising an average $282 million.
To learn more about 144a securities the Forbes story and SEC link are good places to start. In the coming months the semipublic sector will be getting assistance from Nasdaq, which will supply price information to buyers and sellers of 144a shares.