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Summary
Ownership of unlisted equity is rising as public and private markets converge—but they mustn’t move to more opacity. Private equity can have surprises for investors, as in Anthropic’s case. What’s need is more disclosure overall, not less.
Even if armchair investors are fleeing private credit or panicking that their unlisted shares in Anthropic are now invalid, the long-term trend is clear: Public markets keep losing ground to private funds. That is one big reason for proposals in the US to ditch quarterly reporting demands for listed companies.
Big and small investors hate that idea, and they are right to. But concentrating solely on the potential rule changes misses half the story: All investors—and the watchdogs meant to protect them—should be just as focused on getting more information from private companies and the funds that own them.
The trend is towards greater convergence between public and private markets; a levelling of the playing field is necessary. Fuller reporting in private markets is the only sensible policy.
The US Securities and Exchange Commission (SEC) under Paul Atkins is pursuing a company-friendly agenda that aims to cut the costs of being a public issuer of stock or bonds and thereby promote investment and growth. That is a fine goal, although the US does not suffer from a lack of economic vitality—plenty of other countries are more in need of a boost on that front.
Alongside the idea of moving to a bi-annual reporting standard, Atkins has also proposed lessening the already low reporting requirements for private funds through Form PF, the main regulatory disclosure demands on hedge funds and alternative asset managers.
But while the SEC is thinking about reducing the information available to itself and others, the push to get more retail money into private markets is well underway. In the US, it seems likely that retirement funds will eventually get access to private equity and private credit. And there are already a host of platforms that offer ways to trade in the shares of hot unlisted tech companies.
Even in the UK, the London Stock Exchange Group got regulators’ green light to launch its own private securities market, Pisces, late last year.
Certainly, direct access to many of these is only available to the very wealthy, family offices and institutions, but the genie is out of the bottle. Ordinary people wishing to bet on unicorns or private lending can increasingly find ways to do it. This is not a world that calls for less financial reporting.
This year’s most anticipated initial public offerings (IPOs), starting with SpaceX and followed by Anthropic, OpenAI or both, are likely to reveal a mess of ownership claims—and possible disappointments.
People who have found their way into these companies ahead of their IPOs were probably not particularly fussed about revenue progression, profit margins or depreciation rates. Hopes of ever higher valuations were likely the trade.
Still, with better disclosure there is no way investors would only just be learning that Anthropic believes any transactions in its shares not explicitly approved by the AI company could be deemed void.
Meanwhile in private credit, Apollo Global Management and JPMorgan are working hard to get more loans trading regularly. Apollo is also pledging to start posting daily prices for all kinds of private debt, from investment-grade corporate loans to classic mid-market buyout debt and private asset-backed bonds.
The goal is to support wider access for a range of investors, especially individuals, who, unlike big institutions, will always be vulnerable to sudden and unavoidable needs to turn an investment back into cash.
If the industry is successful in making private shares and debts more reliably and easily bought and sold, more people are going to trade them. Let us imagine it is, and the trend for companies remaining private for longer continues; their popularity keeps growing among all investors, and that secondary markets in their shares and loans keep developing. What are we left with?
We would be in a world where public and private markets converge—where issuers can get funding readily in either, because a wider range of investors are there to provide it and trade out when they like. But there is one key difference between the two markets that remains: disclosure. Public markets will have it and private markets will not. Maybe that promotes investment and growth, or more likely, it encourages more companies to stay or go private so they can cut corners in reporting. That would be bad news for investors, markets and the whole economy.
This switch will not happen overnight and plenty of other rule changes would be required for public markets to be completely decimated. But it is clear which way we are currently heading: Public and private are already converging in many ways. Investors, watchdogs and even companies themselves should be looking to shine more light into dark corners rather than lowering a veil over the bits we can now see. ©Bloomberg
The author is a Bloomberg Opinion columnist covering banking and finance.
English (US) ·