So much financial protection comes from public companies trading. But that's also means it's somewhat harder to gamble on the system and manipulate the market.
With companies going private and private equity being more commercialized, we are going to see some nasty stuff. Finance has always had nasty parts, however, no good comes from less transparency.
We need new financial regulations around private equity ASAP. Up to and including making the trade of private equity illegal. Having a private black market for equity is bad for everyone other than insiders.
> Up to and including making the trade of private equity illegal.
How would this even work? "Private equity" just means shares in non-public companies. How would private companies raise capital, which are often are done in the form of trading equity for cash? Should a startup be forced to go public just to raise their series A? Even outside silicon valley or wall st, even something as benign as a neighborhood coffee shop is technically "private equity". Should such business owners be barred from selling their businesses to anyone?
>Having a private black market for equity is bad for everyone other than insiders.
I understand the justification for banning private equity for individual investors on the basis that they can't be expected to discern scams from non-scams (hence the concept of "accredited investors"), but it's far less clear why institutions can't be trusted to do their own due diligence before engaging in a trade.
> How would this even work? "Private equity" just means shares in non-public companies. How would private companies raise capital, which are often are done in the form of trading equity for cash?
I think we could start by eliminating the carried interest loophole. This would eliminate an artificial incentive to engage in PE “work” that really shouldn’t exist in the first place.
Of course, in the current environment with fraudsters being pardoned, that’s a fantasy.
A good question that I don't have a good answer for.
I don't have anything really against individual investors taking a risk on a private business. However, I have big issues with there being a large market for these risks to be traded, swapped, and financialized.
That's where I see most of the danger, it isn't the first hand selling of equity but rather having a literal market for such equity. I shouldn't be able to short kim's coffee shop.
> it's far less clear why institutions can't be trusted to do their own due diligence before engaging in a trade.
Because they, frankly, aren't trustworthy. How much money by VC firms has been dumped into obvious ponzi schemes such as FTX?
The issue I have with institutions is they aren't concerned with due diligence, they are concerned with turning a profit. That means they are more than happy to turn a blind eye to obvious company problems if they think they can get in and out before a meltdown (IE, pump and dump).
The whole rewarding model for these institutions reads like pure scam if you apply any cynicism. Make money win or lose. Make even more money when "win" even if all that win is purely on paper. And if you lose just roll the stuff under some new name that happened to win. Record looks good. Even if other records were losers...
At least with publicly traded stocks you can have substantial market depth so valuations can be "real". But move to private equity and well even that little goes away...
> Should a startup be forced to go public just to raise their series A?
Maybe? Going public just means that you have to report certain information about your financials to the SEC. I get why companies don't want to do that, but if VC investments are going to start being traded as part of 401k plans I'm not sure why the public shouldn't get to see that information. It seems feasible and reasonable to maintain an exception for what you might call "true" private equity, where specific people buy and sell specific companies rather than trading them in liquid markets.
I absolutely detest it too, but private equity is the result of institutional clients and very-wealthy individuals; but also a degree from 401k retirement plans
401k plans aren't primarily to blame, but the (real) investment class will try and pin the blame to the rank-and-file investors and retirees.
All this because there's pressure to find source of short-term-growth, hell or high-water.
“When widows and orphans begin investing, it’s time to get out”. Except that in this case there’s nowhere else to go for the average person.
I absolutely do not want to be involved in a VC scheme because I would lose my shirt.
However, the stock market shrunk over the years as a second tier for the investor
class, because VCs are where the real risk taking and wealth generation happens.
The business model of VCs works, in part, because you can offload your radioactive equity to shmucks buying equities.
The sales pitch with passive investing is that it is an anti-decision...there are no anti-decisions. The only way to produce a savings system that works is to recognise that people are shmucks, people who index funds are also shmucks, and that you need a professional to manage those funds cost-effectively.
Almost no individual investor should ever be making a decision about VC investing (why do you think so many VC firms have listed publicly now? You have to fish where the fish are). But this is the job of plan sponsors, there is no why reason why DB funds should be doing all this stuff (and it going pretty well...people think they are smart investing in passive funds, they aren't aware that DB funds are doing segregated account deals with active managers for LOWER fees than passive funds, most passive funds are high-fee in institutional terms) but no-one else can do it? Makes no sense (as long as individual investors are not making these decisions).
So much financial protection comes from public companies trading. But that's also means it's somewhat harder to gamble on the system and manipulate the market.
With companies going private and private equity being more commercialized, we are going to see some nasty stuff. Finance has always had nasty parts, however, no good comes from less transparency.
We need new financial regulations around private equity ASAP. Up to and including making the trade of private equity illegal. Having a private black market for equity is bad for everyone other than insiders.