The number of publicly listed stocks has fallen by half in
20 years, a dramatic shift in capital markets that has deprived
mainstream investors of high-growth private companies such as
Lyft and Pinterest.
Sophisticated investors have long been able to clear the
added hurdles of private-market investing, such as higher
minimum mandates in private equity, venture capital, hedge
funds, real estate, and other alternatives. Retail investors,
however, primarily invest through their defined contribution
plans, which rarely include unlisted asset classes, and charge
steeply when they do.
Some experts see the paucity of alternatives in DC plans as
a fairness issue. Slow-growth companies are dominating
the public markets, says Kevin Albert, a partner at
Pantheon who leads business development and client service.
Returns from private equity and other investments are
flowing to rich people. Theres a progressive argument
The portfolios of households with $20 million to $100
million grew almost twice as fast as those between $250,000 and
$1 million, according to BCGs 2017 wealth management
report. Managing Director Brent Beardsley attributed the alpha
of the ultra-rich to the illiquidity premium
better returns via allowing money to be locked up for extended
periods of time which lesser portfolios and 401(k) plan
members often cannot access.
Asset managers, however, are chomping at the bit to offer
versions of private equity and other alternatives in retail
mutual funds or other formats compatible with 401(k) plans.
Beardsley says so-called liquid alternatives do hold
promise. But will you get the same level of performance
as investors have long term? Its still unclear. But
he emphasizes that individuals belonging to defined benefit
pension plans have always benefitted from alternatives. DC
participants should get the same opportunity, he argues.
A number of factors have contributed to public
companies thinning numbers, including rising regulatory
costs and the threat of activist investors who often demand big
strategy changes. At one time, private companies went public
because they wanted access to capital for growth. Now, they can
stay private and raise money all the same.
Private equity firms, which typically invest in private
companies or take public firms off the market and restructure
them, possessed $1.5 trillion in assets in 2016. Thats up
400 percent since 2000, according to Pantheon. For the young
unicorn companies seeking investment capital, thats
plenty to go around.