PM Insights Letter to SEC Chairman on Private Market Valuations

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Hon. Paul Atkins, Chairman

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC

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Dear Chairman Atkins,

Welcome to the Securities and Exchange Commission.

We understand that you are acutely focused on policy and regulatory changes that are intended to spur capital formation in the public and private markets.

PM Insights is a private markets data, research, and analytics provider which helps investors accurately account for valuation fluctuations and manage often unseen private markets risks. In the recent ballooning and continued proliferation of America’s appetite for Venture-backed risk, we cover clients and research subscribers across university endowments, public-facing asset managers including mutual funds and ETF managers, registered investment advisors, and public pensions.

Given our role in facilitating a competitive and efficient market in private market assets, we urge you to remain cognizant of the key differences between the public and private markets, and tailor your private markets solutions to address the heightened risks attendant to those markets.

In particular, we urge you to prioritize efforts to promote accurate valuations, as they are essential in efficient capital formation and investor protection. Valuations drive investment decisions. They drive performance metrics. And they often drive fees paid to investment advisers and brokers. Inaccurate valuations lead to significant waste, fraud, and abuse – and often divert precious investor resources away from better investment options.

Improving the accuracy and of private market valuations should be a high priority – particularly as you and Congress consider expanding access to the private securities to more retail investors.

It is our experience – and that of many private market investors – that when an investor looks to sell a private security, whether a venture holding, private equity holding, or a stake in a private fund, the prices the investor is likely to sell at are often materially different – most often, lower – than the valuations they may see on their statements or other investment-related documents provided by the issuer or the broker who sold the investment to them.

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Part of this discrepancy is likely attributable to the very significant differences in how “valuations” are arrived at in the private markets. As shown here, the drivers for prices in private securities are often quite different than in public markets.

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Often, investors in private market securities are using “stale” prices that might be reflective of a venture funding round that may have occurred years in the past, perhaps by receiving a single datapoint from one broker source. These may be dramatically different from other observable datapoints, such as private market sales or comparisons to (albeit imprecise) prices of proxies trading in the public markets. As a result, in recent years, many of the largest, most sophisticated private markets investors have sold their private market securities at very significant discounts to their so-called carrying values.¹

For stakes in private equity funds, for example, Jefferies Financial Group estimated in 2024 that investors’ second-hand sales fetched an average of just 85 percent of the purported values assigned within six months before the sale.² In many venture and other private funds, recent disconnects between “valuations” and actual sale prices for investors have been nearer 50 percent, as shown from data received by PM Insights.

Interestingly, even these valuation disconnects are typically only made public because a public pension was forced to publicly recognize it, a private company or fund adviser is compelled to tell its other investors, or it is leaked to reporters.

In the public markets, by contrast, investors can simply look at the public tapes and see, to the millisecond, accurate quotations and trading prices.

We at PM Insights look to bridge some of that gap of information in quotations and execution prices. As the first and only, independent venture secondaries market data aggregator, which remains independent of any trading economics, we are privileged to be the closest comparison to TRACE or MSRB when large private companies’ stock changes hands. To put this into perspective, Databricks, a venture-backed company held by many prominent registered investment companies was priced by a BNY Mellon fund at $90.23 on the same day that another fund managed by Morgan Stanley used a valuation of $66.81. Given inconsistency in valuation practices, massive gains or losses may be perceived based upon the valuation practices, not the actual fair market value of the securities.³

Interestingly, driven by significant regulatory changes driving the expansion of the private markets over the past fifteen years, secondary market trading in these securities is now very common – particularly for the handful of private firms that account for the lion’s share of the private securities markets value.

PM Insights deploys an objective, market-driven approach to tracking pricing in private assets, similar to how most fixed income instruments are priced by the most prominent data vendors such as S&P, ICE, LSEG, and Bloomberg. The top names covered by PM Insights, including SpaceX, Reddit (prior to IPO), CoreWeave (prior to IPO), Chime Bank (recently filed S-1), Stripe, ByteDance, Discord, among others, have combined private valuations of over $1-trillion dollars, and typically see many billions in monthly trading interests which are never reported. Improving the transparency, accuracy, and reliability of this opaque and asymmetric market is what PM Insights (and other private service providers) are looking to do.

Accurate valuations of private securities are important for all investors, but perhaps more acutely so for smaller institutions or “retail” investors. Increasingly, retail investors are buying stakes in private funds and securities in the secondary trading markets – typically at prices that exceed what institutional investors have proven willing to pay.⁴ This suggests a class-based information asymmetry on the values of securities. We believe that the most appropriate way to address that disparity would be to ensure that fiduciaries to those retail investors are providing them with real “fair values.” Further, retail investors are likely less capable of absorbing a 15, 30, or 50 percent discount to their mark-to-market when they look to borrow against or sell their holdings.

Also, individuals are frequently less likely to be able to plan for withdrawals and manage cash flows, increasing the risks that they may be forced to sell at steep discounts. These concerns have been realized by several prominent funds restricting redemptions over the past few years.⁵

To promote safe growth of private markets and protect investors, we recommend that federally or state registered investment advisers investing in private securities on behalf of customers be required to undertake best efforts to ascertain the “fair market value” of their private securities and portfolios.

An investment adviser fair value rule could be modeled on the Fair Value Rule already exists for registered investment companies, and should be reflective of advisers’ best efforts to ascertain actual valuations… not simply accepting a number that was selected by the issuer’s CEO, or a small handful of investors during a capital raise a year ago, or a self-interested private fund adviser.⁶

In addition, we recommend that all federally registered investment advisers be required to provide regular account statements to investors and undergo annual audits for all of their client funds.

Lastly, we urge you to explore private fund and industry practices with respect to valuations. While regulators in the United States have brought some limited cases against investment advisers for overtly fraudulent private securities valuations, there has not been a broader industry-wide review of even wildly inaccurate valuations.⁷

Our customers believe that accurate valuations of private securities are essential to making markets work properly. We hope you do, too.

Thank you for your consideration, and if you or your staff would like to follow up, please reach out to me at nfusco@pminsights.com.

Sincerely,

Nicholas Fusco

President & CEO

ApeVue Inc. (d/b/a PM Insights)

nfusco@pminsights.com  

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¹ _{See, e.g., Reuters, Fidelity marks down value of Twitter stake by 56%, Reuters, Dec. 30, 2022, available at https://www.reuters.com/technology/fidelity-marks-down-value-twitter-stake-by-56-2022-12-30/; see also, Harvard predicts looming markdowns to private fund holdings, Financial Times, Oct. 13, 2022, available at https://www.ft.com/content/e00fd280-3863-4a12-8dc5-017058590ebe (quoting Harvard Management Corporation CEO Narv Varvekar saying “managers have not yet marked their [private securities] portfolios to reflect general market conditions… [and that marking venture funds to their last funding round] would “slow the process of moving existing valuations to fair value”).}

² _{Pensions Piled Into Private Equity. Now They Can’t Get Out, Wall St. Journal, June 15, 2024, available at https://www.wsj.com/finance/investing/pensions-piled-into-private-equity-now-they-cant-get-out-d3ca796d.}

³ _{This may be reflective of valuations relying upon subjective ASC 820 Level 3 modeling, as opposed to leaning towards a superior, Level 2 (Markets Driven) approach.}

⁴ _{Funds for wealthy investors snap up expensive private equity stakes, Financial Times, May 11, 2025, available at https://www.ft.com/content/8179cfdf-e31a-4484-8442-23a61815d5eb.}

⁵ _{See, e.g., Blackstone’s $66 Billion Real Estate Trust Limits Redemptions for 12th Month, Bloomberg, Nov. 1, 2023, available at https://www.bloomberg.com/news/articles/2023-11-01/blackstone-s-66-billion-breit-limits-redemptions-for-12th-month.}

⁶ _{17 CFR § 270.2a-5.}

⁷ _{But see, Letter from Camille Blackburn, Financial Conduct Authority, Mar. 1, 2024, available at https://www.fca.org.uk/publication/correspondence/portfolio-letter-asset-management-alternatives-supervisory-strategy-interim-update.pdf (reflecting inquiries by the United Kingdom’s Financial Conduct Authority); and Australia Regulator Steps Up Private Markets Focus With New Unit, Bloomberg, July 23, 2024, available at https://www.bloomberg.com/news/articles/2024-07-24/australia-regulator-steps-up-private-markets-focus-with-new-unit (reflecting inquiries by Australia Securities and Investments Commission Chairman Joseph Longo).}