The number of publicly listed companies in the U.S. has been steadily declining for decades and dropped by almost half from 1996 to 2012. Increased disclosure requirements, listing costs and governance practices have all made being a public company seem “increasingly or excessively onerous.” Instead, more companies are looking to the private markets for capital.
Thanks to an increase in the allowable shareholder limit for a private company brought by the JOBS Act of 2012, companies now have the ability to remain private longer (or indefinitely). As a result, capital has flooded the private markets from VC’s and other institutions and funds; in 2018 alone, nearly $778 billion of new capital flowed into the private markets. For these investors, the private markets offer not only access to an ever-expanding list of growing companies but also uncorrelated returns not tied to public market volatility. And while the private markets have historically suffered from illiquidity, secondary funds and now digitized securities are emerging to help fix that.
As the private markets continue to develop, involvement from regulators will be key to market growth. Particularly as more pension funds and other public market investors look for diversification through private market opportunities, regulators must help ensure the private markets maintain adequate investor protections, disclosures, and access to liquidity.