Democratization of the Private Markets?

Authors

Colleen Baker, University of Oklahoma
Christina M. Sautter, Southern Methodist University, Dedman School of LawFollow

ORCID (Links to author’s additional scholarship at ORCID.org)

Christina Sautter: https://orcid.org/0000-0003-3124-7404

Abstract

U.S. initial public offerings are declining and the amount of private market assets under management are exploding. Simultaneously, the number of retail investors opening taxable brokerage accounts is increasing. Private market assets are hot. Everyone–both institutional and retail investors–wants in on the action. Yet considerations such as financial resources and U.S. securities laws make such investment less accessible for many retail investors. In this short article, we explore this changing investment landscape and, specifically, one development within this craze: retail investments in private company shares via closed-end funds (or CEFs).

Recently, CEFs like ARK Venture Fund and Destiny Tech100, Inc. have been developed with the explicit goal of democratizing equity investment in private companies. ARK and Destiny cater to retail investors, who want to direct their own investments via commission-free trading apps. Many of these retail investors have long been foreclosed from investing in private company shares because they do not qualify as “accredited investors” based on their wealth or income. However, CEFs like ARK and Destiny are changing this longstanding status quo.

Our goal is to begin a scholarly focus on this time of “democratization of private markets.” Accordingly, we explore several considerations with respect to CEFs. These include the lack of voting rights afforded to retail investors in the underlying securities of the fund; the diversification offered to investors; the risk of increasing institutionalization of the private markets; the liquidity of fund shares; and the need for investor education to facilitate retail investor inclusion. We also touch upon proposed legislation which suggests a burgeoning national focus on facilitating more widespread investment in private market assets.

Publication Title

Transactions: The Tennessee Journal of Business Law

Document Type

Article

Keywords

Closed-end funds, CEF, Retail investors, Wireless investors, Accredited investors, ARK Venture Fund, Destiny Tech100, Private companies, Private markets, Private placement, Crowdfunding, Empower Main Street in America Act, Liquidity, Diversification, Investor education, Democratization

Recommended Citation

Colleen Baker & Christina M. Sautter, Democratization of the Private Markets?, 26 Transactions: Tenn. J. Bus. L. 67 (2025)