The public stock market isn’t enough anymore

THE sharp division between public and private securities was a major bulwark of financial regulation from the New Deal in the 1930s to the end of the 20th century. Securities that could be sold to anyone had extensive disclosure and investor-protection rules, while private securities that were available only to sophisticated institutions and wealthy individuals had limited regulatory oversight.

For a quarter of a century, cracks have been appearing in the dam separating public from private. Now, we appear to be poised on the brink of a complete dam break.

Deloitte estimates that within five years, US and European retail investors will hold US$5.4 trillion of investment in private companies, up from under US$1 trillion today, if recent trends hold. This will constitute a significant fraction of all retail investment.