By Benjamin Schiffrin | Director of Securities Policy
November 18, 2024

Our new report explains that the private markets have seen explosive growth over the last two decades. This growth comes at the expense of our public markets, which are deep, liquid and the envy of the world. The growth of the private markets thus has significant ramifications for institutional and retail investors, capital formation, and the entire economy and all Americans.

Our accompanying report highlights these ramifications:

• First, pension funds have been increasing their investments in the private markets. 34 million Americans are now exposed to the private markets through their pensions. But the lack of transparency in the private markets means that investments in the private markets have heightened risks, which endangers the retirement savings of America’s teachers, firefighters, and police officers.
• Second, the financial industry is increasingly trying to induce retail investors to invest in the private markets directly. But the private markets lack the fundamental protections that the federal securities laws provide investors in the public markets. So any attempt to provide more investors, including retail and elderly investors, with supposedly lucrative opportunities in the private markets, such as through private credit ETFs, must account for the fact that these opportunities come with much higher risk and much less transparency about the nature of that risk.
• Third, empirical research shows that capital is allocated more efficiently in public markets rather than private markets. This makes sense, since the disclosure requirements that ensure investors have the information that they need to get capital to its most productive uses exist in the public markets but not in the private markets. So the consequences of raising capital through the private rather than public markets extend beyond the risks to retail investors to real capital formation.

Policymakers must ponder these ramifications as they consider the public/private market divide. They must also consider, as our accompanying report shows, the fact that the public markets generate benefits for society as a whole. The ability to access the public equity markets allows companies to grow, which creates jobs and wealth, and so a shift away from the public markets threatens the benefits that they provide.

Find our full report on Private Markets here.