SEC Proposes Private Asset Access for All

The Motley Fool's Hidden Gems Investing podcast explores this development, alongside an analysis of Accenture's recent earnings report and planned discussions on potential SEC rule changes regarding private asset access.

Accenture's shares surged by 19% following its fiscal 2026 earnings report, which surpassed Wall Street's expectations for both revenue and earnings.

Despite the stock jump, revenue growth for fiscal 2026 in local currency was only 5% year-over-year, with management projecting fiscal 2027 growth between 3% and 6%.

Jon Quast noted that while the company is not necessarily thriving, its valuation had previously dipped below 10 times expected earnings, indicating a rebound from a low point.

Accenture maintains a relatively low trading multiple of 14 times earnings, supported by a respectable non-GAAP operating margin of 15.8%, which improved slightly year-over-year.

The company consistently deploys nearly all its free cash flow into share repurchases and dividends, reflecting a standard operational practice for consulting firms due to their low capital expenditure requirements.

This high cash distribution strategy is seen as a normal course of business rather than a sign of stagnation, enabling the firm to return capital to shareholders without hindering operations.

Speakers discussed the combination of Accenture's 5% revenue growth and active share buybacks.

This strategy targets a 7% to 10% earnings per share growth, making the valuation appear relatively attractive despite broader market volatility.

The speakers cautioned against overreacting to single-quarter market movements, citing the example of The Trade Desk in May 2025, which saw a 20% spike before an 80% decline.

Accenture still faces fundamental questions regarding the long-term impact of artificial intelligence on its core business model, despite its recent stock surge.

Accenture reported that 65% of its new bookings are now from outcome-based, fixed-price projects, a strategy that differentiates it from the unpredictable costs associated with AI models.

This approach offers clients price certainty for specific outcomes, directly countering the operational inefficiencies and unpredictable token usage common in AI-driven workloads.

Accenture's primary expense has historically been high-end talent, but the firm now faces increased competition for AI and coding skills.

The integration of AI into business operations may reduce the total hours needed for projects, potentially creating downward pressure on billable-hour revenue for consulting firms.

Furthermore, the democratization of coding could shift more work from external consultants to in-house client teams, impacting Accenture's business model.

Proposals allowing private equity deals within 401(k) plans reflect the shift toward democratizing asset classes previously restricted to institutional players.

Proposals have emerged to permit private equity deals within 401(k) plans, signaling Wall Street's renewed interest in pension-style investment strategies that favor private capital over traditional public market investments.

A 20% limit on performance fees for registered advisors, new professional licensing standards for accreditation, and increased fund flexibility comprise the SEC's three latest regulatory proposals.

These changes include raising the upper limit for performance fees for registered investment advisors to 20%, introducing professional licenses as a new pathway to becoming an accredited investor, and providing more flexibility to private funds regarding redemption requirements.

These proposed rules are widely seen as a push from Wall Street to expand retail investor access to private markets, moving beyond the traditional wealth-based criteria for participation.

Jon Quast advocates for a fundamental shift in accreditation rules, moving from a wealth-based system to one that emphasizes knowledge and competency.

He argues that current wealth thresholds often overlook an individual's financial capabilities and personal circumstances, limiting opportunities for wealth growth for capable investors with lower liquid assets.

Tyler Crowe argues that the proposed SEC rules are primarily a pro-Wall Street initiative designed to secure more capital for private funds, potentially at the expense of retail investors.

He warns that humans are generally poor at assessing their own competence, which could lead to significant financial losses if retail investors are drawn into lower-quality private equity opportunities by the allure of high-profile companies like SpaceX or OpenAI.

He emphasizes that for every successful 'unicorn,' there are numerous failed ventures, citing examples like Theranos or WeWork, which investors must consider.

Companies such as SpaceX and OpenAI hold multiple funding rounds, sometimes reaching series M, which delays public access to early-stage wealth creation compared to the faster market entry of firms like Amazon and Netflix.

Historically, wealth creators like Amazon, Netflix, and Tesla went public at significantly lower market caps, whereas modern private companies now undergo multiple funding rounds, sometimes reaching series M, and achieve multi-trillion dollar valuations before ever becoming accessible to individual public investors.

Lou Whiteman advocates for increased regulation to prevent private funds from prioritizing 'limited partners' with whom they have long-term relationships over retail investors.

He raises concerns that without sufficient oversight, retail investors might be allocated less desirable or riskier assets, while institutional partners secure the better deals.

Early-stage investing inherently carries high failure risks, and investors must meticulously scrutinize fund allocation strategies and evaluate individual deals on a case-by-case basis to mitigate potential losses.

Jon Quast highlights that private companies operate under significantly different disclosure rules compared to publicly traded entities, requiring investors to focus on fundamental business evaluation rather than just ticker performance.

He stresses that private assets often involve bespoke term sheets, which necessitate extensive due diligence beyond what is typically required for standardized public equities.

Investors must delve deeper into the underlying business and its unique conditions due to the limited information available.

The speakers emphasized their inability to provide personalized investment advice, encouraging listeners to consider their own risk tolerance and financial goals.

Jon Quast shared his personal experience with significant losses from speculative investments, which led him to adopt a more cautious approach.

Investors should differentiate between speculative 'home run' bets and their core long-term holdings to manage risk effectively within their portfolios.

Jon Quast outlined a strategy of diversifying when initially buying stocks but concentrating in holding them over time, aligning with statistics that show a small percentage of stocks drive significant returns.

This approach involves allowing long-term winners to naturally grow into larger portions of the total portfolio, rather than rigidly maintaining equal weightings.

Lou Whiteman described his portfolio strategy, which includes a core group of about 20 'boring and reliable' stocks intended to provide a secure foundation for retirement.

Panelists noted that some investors balance these core holdings with a larger number of smaller, more speculative positions, emphasizing that investing style is a highly personal and emotional decision.

There is no one-size-fits-all formula, and individual risk tolerance and financial goals should dictate portfolio construction.