Wall Street Wants to Make Private Markets a Little More Public

Wall Street Wants to Make Private Markets a Little More Public

There’s a new darling on Wall Street: private markets.

Because that’s where the party is now. Companies are staying private for longer — the number of publicly traded companies has dropped by nearly half over the past three decades, with nearly 1,500 start-ups worldwide currently boasting a valuation of $1 billion or more — and, according to the global consultancy Bain & Company, private market assets have more than tripled since 2013. The firm expects them to grow twice as fast as public assets in the future, reaching $62 trillion globally by 2034.

Historically, private equity investments were accessible only to wealthy and experienced investors. But in recent years, interest has soared among the retail class.

The New York Times

Fund managers, brokerage houses and savvy start-ups are racing to build new products that expand access to all, and the newly appointed chairman of the Securities and Exchange Commission, Paul S. Atkins, has signaled he supports the goal.

“This is just the beginning,” said the senior vice president of Robinhood Crypto, Johann Kerbrat, who is leading Robinhood’s efforts to make private equity tradable on its platform.

Washington appears to be on board. Investments in private companies have typically been reserved for “accredited investors” — people that earn more than $200,000 a year or have a net worth of at least $1 million. The requirement is meant to protect everyday investors from high-risk investments “There’s not a lot of clarity, you can’t get your money out, and you might lose all your money,” said Jonathan Foster, the C.E.O. at Angeles Wealth Management.

Atkins indicated in May he planned to expand private markets access for retail investors. “Financial innovation sometimes means getting out of the way of capital formation,” he said.

The White House is reportedly finalizing an executive order allowing 401(k) retirement savings plans to invest in private equity, according to The Wall Street Journal. That would ease the legal concerns that have kept private equity out of the U.S. defined contribution market, which has grown from $9.6 trillion in 2022 to $12.4 trillion in 2024.

New firms specialize in a secondary market for private shares. Trading platforms such as Forge Global, Destiny, Augment, Hiive, and EquityZen act as middlemen between early employees of private companies looking to sell their shares and public investors hoping to put their money in the private entity. Forge, for example, currently offers investment opportunities in roughly 200 hot-shot private companies such as SpaceX, OpenAI, Anthropic, Figma and Stripe — with nearly 2,000 companies on the firm’s radar.

While these platforms require investors to be accredited, they have made it easier to find private shares (sometimes without permission from the companies that issued them).

In March, Forge lowered its minimum investment threshold to just $5,000. “We believe in broadening access to all investors,” said the company’s chief strategy officer, Howe Ng, adding that Forge’s total trading volume for the first quarter of 2025 increased by 132 percent over the prior quarter, topping out at $692.4 million.

Tokens could open access for even unaccredited investors. Last month, Robinhood announced a rollout in Europe of tokenized equities, which are blockchain-based derivatives of public and private assets that can be traded like stocks or cryptocurrency. As part of the launch, the retail trading platform gave away tokens of OpenAI and SpaceX, which aren’t yet tradable but, according to the company, hold as much value as an equity stake. (OpenAI said in a social media post that the tokens are not equity in the company.)

Robinhood plans to tokenize thousands of private companies and other private assets in the future. “The beauty of this technology is that we can adapt it to any financial instruments,” Kerbrat said.

He called private markets “the next frontier to democratizing investing.”

Don’t forget E.T.F.s, mutual funds, and 401(k)s. Traditional investment vehicles have also latched on to the trend of private market access. Exchange-traded funds such as $XOVR and $ARKVX hold shares in private equity funds that have exposure to popular private technology companies, and Forge recently applied for S.E.C. approval of an interval fund that will track 60 privately held, late-stage venture-backed U.S. companies, including Chime, Circle, Kraken and SpaceX.

The world’s largest fund managers are creating products aimed at selling private market exposure to mom-and-pop investors saving for retirement. Blackrock Inc. recently introduced a target-date fund that includes private equity and credit, and has invested roughly $30 billion on acquisitions to further expand into private markets. Empower, which manages $1.8 trillion, will likewise offer private assets in retirement plans in the near future.

On Friday, JPMorgan Chase began expanding its research offerings to include private companies

Where does it go from here? It depends on whom you ask. Angeles Wealth Management’s Foster fears that broadening access to private markets opens the door for highly speculative derivative securities that play into retail investors’ worst impulses. “Wall Street will keep creating more and more products to create more and more implicit leverage to feed that gambling instinct,” he said.

The S.E.C. understands this. Despite the chairman’s support for innovation in this space, the agency recently posted a reminder that the rules still apply, especially for synthetic versions of private equity. “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset,” wrote Hester Peirce, a Republican commissioner. “Tokenized securities are still securities.”

Still, because the underlying asset is a private company, financial transparency could fall short compared to public stocks, leaving the retail investor to close the knowledge gap. “I think the customer can make a lot of the decisions by themselves,” Robinhood’s Kerbrat said.

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Where has all the M&A gone?

In the mythology of Silicon Valley, the initial public offering is the gold-standard exit for a start-up. But the number of I.P.O.s has dwindled over the last 25 years, replaced almost completely by acquisitions.

And now, even that exit has exited. In the last five years, the number of acquisitions has gone off a cliff.

The New York Times

Why the drop-off? In a new paper titled “No Exit,” a Vanderbilt law professor, Brian Broughman, and Cardozo law professors Matthew Wansley and Samuel Weinstein argue that the answer is fear of antitrust scrutiny — and the proof is in stealthy new deal-making, so-called reverse acquihires like Google’s recent hollowing-out of the A.I. company Windsurf, and Big Tech’s A.I. sugar-daddy relationships with companies like OpenAI. Wansley talked with DealBook about the deals that ate M&A.

The dot-com bust and regulatory changes ended the era of the I.P.O. So what happened to acquisitions?

In the 2000s and the 2010s, while I.P.O.s were in decline, acquisitions were on the rise — tracking the amount of money going into venture capital. The last few years, that starts to drop off, too. Our argument is that it’s out of fear that they’d get scrutiny from the Department of Justice and Federal Trade Commission.

In the years before 2020, there were, like, three start-up acquisitions that got scrutinized and challenged by the D.O.J. and F.T.C. After that, it’s 14.

How do you know Big Tech got scared? That could be a statistical blip.

The compelling evidence is deal structures that we haven’t seen before. To me, the reverse acquihire is the smoking gun, because there is no reason to do a reverse acquihire unless you’re trying to evade antitrust enforcement.

Acquihires are common enough. What makes it an antitrust dodge?

We think reverse acquihires are something new. A Big Tech company wants to acquire a start-up, but it’s worried that the D.O.J. or F.T.C. is going to challenge the deal. So instead, they get the founders and the core engineering team to leave the start-up and come work for them. But the V.C.s are not going to be happy about that, because they don’t want to see their investment walk out the door. So the Big Tech company says, OK, we’re going to pay the start-up to license their intellectual property.

That seems fine. People change jobs. IP gets licensed.

You have to understand, the license is fake. I mean, it’s real in the sense that it’s legally enforceable, but it is fake in the sense that they’re making the payment because they want to pay off the venture capitalists.

But the license fee doesn’t go to the V.C.s, does it?

The clearest evidence that this is what’s going on is that right after the license deal goes through, the start-up, or the shell of the start-up that’s left, pays a dividend to its shareholders. Dividends are common in big public corporations, but they are vanishingly rare in start-ups. The dividends are proof that what big tech is trying to do is pay off the V.C.s. It’s an acquisition in substance, but not form.

OK. Then what’s up with, say, Microsoft and OpenAI? That’s not a reverse acquihire.

That’s a more complex phenomenon. It used to be that corporate venture capital would be one of many investors in a company, including traditional V.C.s. What happened with OpenAI and Anthropic is different. The checks that Microsoft has written to OpenAI and that Google and Amazon are writing to Anthropic are in the billions. We call that a “centaur,” half public and half private. Public corporations are dominating the capital structure of a private company. So, if you’re OpenAI or Anthropic, you are much more beholden to these large public companies.

It is hard to think of an A.I. company that is truly independent from all of the incumbent big tech players.

And we’ll know you’re right about antitrust fears if the acquisitions start again under the new, more merger-friendly F.T.C. and D.O.J., right?

The Trump administration has been sending mixed signals on antitrust. There is some evidence that players in the market think that antitrust scrutiny is going to relax. Google is trying to do the Wiz deal again, right? But the persistence of the reverse acquihire structure suggests that they are still worried.

As much as I would love it if the real world would cleanly test our thesis, I don’t think the Trump administration is going to give us that opportunity.

Quiz: medical necessity

Truemed, a three-year-old start-up, supplies medical notes that help people make all sorts of purchases with the money in their health savings accounts, which isn’t subject to federal income taxes. It was co-founded by an aide to Health Secretary Robert F. Kennedy Jr. and could benefit from changes to the health system being pursued by the Make America Healthy Again movement, Ron Lieber and Benjamin Mueller report for The Times. (The company said in a statement that it had “implemented a compliant, industry standard telehealth process in early 2024.”)

Through the start-up, Ron and Benjamin were able to secure letters of medical necessity for all but one of the below purchases. Which qualification request was denied?

Thanks for reading! We’ll see you Monday.

We’d like your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.

Quiz answer: 3

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