Private equity and venture capital funds create an illusion of stability by avoiding daily mark-to-market pricing. This "laundering of volatility" is a core reason companies stay private longer. It reveals a key, if artificial, benefit of private markets that new technologies like tokenization could disrupt.

When private equity firms begin marketing to retail investors, it's less about sharing wealth and more a sign of distress. This pivot often occurs when institutional backers demand returns and raising new capital becomes difficult, forcing firms to tap the public for liquidity.

Private equity's low reported correlation with public markets is largely an illusion created by smoothed, infrequent valuations ("volatility laundering"). The effect is exaggerated when institutions report private asset returns with a one-quarter lag, creating "accounting diversification" instead of real risk reduction.

The term 'private equity' replaced 'leveraged buyout' (LBO) after the LBO boom of the 1980s ended in a wave of high-profile bankruptcies. Howard Marks notes this name change was a deliberate marketing move to shed negative connotations and attract fresh capital to a reinvented industry.

Investors are drawn to PE's smooth, bond-like volatility reporting. However, the underlying assets are small, highly indebted companies, which are inherently much riskier than public equities. This mismatch between perceived risk (low) and actual risk (high) creates a major portfolio allocation error.

Created to help ordinary Americans invest cheaply, index funds became so successful that the top four now own over 25% of most large U.S. companies. According to Harvard's John Coates, this runaway success has given them massive, unintended power over corporate governance without a mandate to wield it.

Institutional allocators are currently over-allocated to illiquid private assets due to the denominator effect. When distributions from these funds finally resume, the initial wave of capital will be used to rebalance portfolios back toward public markets, not immediately recycled into new private equity commitments, a trend private GPs may not see coming.

Basic efficiency—doing things in bulk is cheaper—drives the growth of massive index and private equity funds. Harvard's John Coates argues this economic good creates a political problem, as the resulting concentration of influence in a few firms is at odds with the democratic principle of dispersed power.

The trend of companies staying private longer and raising huge late-stage rounds isn't just about VC exuberance. It's a direct consequence of a series of regulations (like Sarbanes-Oxley) that made going public extremely costly and onerous. As a result, the private capital markets evolved to fill the gap, fundamentally changing venture capital.