How private markets work, and why you cannot get in

Companies stay private far longer than they used to, so much of the growth happens before anyone can buy shares. The rules restricting access were written to protect people, and their effect is to reserve that growth for those who already have money.

Part of how markets actually work.

Every market so far has been open to you. This one mostly is not, and the reasons are worth understanding — because a large share of the growth in modern economies now happens inside it.

What changed

Companies used to go public early, when they were small and risky, because that was how they raised serious money. An ordinary person could buy shares near the start and hold through the growth.

Now companies stay private far longer. Enormous private funding is available, so there is no need to list — and listing brings disclosure requirements, quarterly scrutiny and shareholder pressure that founders and their backers would rather avoid.

The consequence is arithmetic. If a company does most of its growing while private, that growth accrues to private shareholders. By the time it lists, the early multiple has already been captured. Public investors buy a mature business at a mature price.

That is a structural change in who gets access to growth, and it happened without anyone deciding it should.

Who is on the other side

The private capital stack, roughly in order of when they arrive:

Founders and staff, paid partly in equity — the ownership channel arriving through a job, and the most accessible route in for an ordinary person.

Angels, wealthy individuals investing their own money very early.

Venture funds, investing other people’s money in exchange for fees and a share of gains.

Growth and private equity funds, arriving later and larger, often buying whole companies.

Note what nearly all of them have in common: they are deploying other people’s capital and being paid to do it. Which is the same move that appears at the top of every field on this site — the largest returns in private markets go to managers, not only to owners.

The fee structure

The convention is roughly “two and twenty”: about 2% of the capital managed each year, plus about 20% of the profits.

Look at the first number. It is paid on the amount managed, regardless of performance. A fund managing a billion collects around twenty million a year before earning anything for anyone.

That is not fraud, and large funds compete the fee down. But it explains a persistent behaviour: raising a larger fund reliably increases the manager’s income, while producing better returns does so only sometimes. When you notice funds growing steadily larger, that is the incentive being followed.

Why you are not allowed in

Most countries restrict private investments to “accredited” or “sophisticated” investors — defined by income or net worth thresholds.

The stated purpose is protection, and the reasoning is sound: these investments are illiquid for years, disclosure is limited, valuations are estimates, and most individual bets fail. Someone who cannot absorb a total loss should not be exposed to that.

The effect, though, is a rule that says you may access this once you already have money. Whatever growth happens inside private markets is reserved for people who have already accumulated. Protection and exclusion are the same rule read from two directions, and reasonable people disagree about the balance.

Worth being clear-eyed rather than indignant: the losses these rules prevent are real, and access is not obviously a favour. But the distributional effect is real too.

The returns nobody sees

Private market returns are reported by the funds themselves, and that shapes what you can conclude.

Valuations are estimates. A private company is worth what the last funding round implied, until someone actually pays. Marks can stay high after conditions change, which smooths reported returns in a flattering way.

Survivorship is severe. Funds that failed stop reporting. Averages drawn from funds still operating are not averages over funds started.

The dispersion is enormous. Unlike public equities, where most broad funds land near the index, private returns vary hugely between managers. Top-quartile funds do very well; bottom-quartile ones do badly. Access to the good ones is the actual scarce thing, and it is allocated by relationship and track record rather than by willingness to pay.

That last point undercuts most of the argument for opening access. Being allowed to invest in private markets is not the same as being allowed into the funds worth investing in.

The realistic routes in

Work at one. Equity in a private company is the most accessible entry, and it is why compensation packages at growing firms are worth evaluating as ownership rather than as salary. It is also concentrated and illiquid, and staff frequently overvalue it.

Public vehicles that hold private assets. Listed private equity trusts and similar. Real access, with fees and structure to examine carefully.

Wait for the listing and accept that the early growth is gone. This is what index investing does, and it is a perfectly reasonable answer.

Buy a small business. Buying an existing business is the private market that is genuinely open — no accreditation rule, published accounts, and multiples far below what funds pay. It is unglamorous and it is real ownership of a private company.

What to take from it

A growing share of growth happens where you cannot buy, and that is a change from a few decades ago rather than a permanent condition.

The managers capture much of it, through fees on capital rather than returns on it.

Access, not permission, is the constraint. Even accredited investors mostly cannot reach the funds that produce the returns quoted at them.

And the open version of this market is the small business down the road, which nobody restricts and almost nobody considers.

Next: how freelance platforms actually work.