What are the Private Capital Markets?

What are the Private Capital Markets?

The private capital market is a vast market of investment opportunities and deals that often goes unnoticed compared to their much more visible public counterparts. While the private markets may not be as apparent to most, they offer an incredible array of opportunities for those willing and able to do the due diligence and research required to take advantage of them.


Growth in Private Capital Markets

The private capital markets, while seemingly more exclusive and less accessible than the public markets, are, in fact, a much larger market than their public counterparts. Private companies far outnumber publicly listed companies, with approximately 450 million private companies compared to only 100,000 publicly listed companies across the globe. This discrepancy results from fewer regulations and reporting requirements that come with private companies compared to public markets, meaning that many investors are willing to take on greater risk to gain greater returns.

In 2021, private US companies raised an estimated $3.9 trillion through private capital markets while only raising $1.2 trillion through publicly traded markets in the US. This clearly indicates the impressive potential within the private capital markets. Not to mention, the size of these markets is expected to double by 2027.


Who are the Participants in Private Capital Markets?

The private capital markets involve many participants and stakeholders with unique roles to play. With various regulations, laws, and rules that apply to the other participants, knowing who they are and their roles are essential when engaging in private capital markets. These include:

Broker-Dealers: Broker-dealers act as intermediaries between buyers and sellers of securities, typically on behalf of investors. They generally are licensed, regulated, and subject to oversight by governing bodies such as the Securities Exchange Commission (SEC) and FINRA.

Registered Funding Platforms: These platforms provide access to private capital markets for issuers and investors. Typically a platform registered with the SEC or other financial regulators, these platforms allow for securities transactions in the private capital markets.

Lawyers: Lawyers provide legal advice and expertise to the participants involved in the private capital markets, helping to ensure that all parties understand their rights and obligations regarding these markets.

Auditors: These are third-party accountants responsible for verifying companies’ financial statements in the private capital markets. As such, auditors provide an essential service when it comes to confidently engaging in these markets.

Transfer Agents: These companies act as intermediaries between buyers and sellers of securities while ensuring that the transfer of assets is done correctly and according to all applicable regulations.

Banks: Banks are licensed financial institutions that can hold companies’ funds while raising capital with broker-dealers or registered funding platforms.

Investors and Shareholders: These individuals or entities provide the funds for private investments in exchange for a share of the company, either through an equity stake or a debt instrument.

As the private capital markets continue to grow in importance and prominence, it is essential for those looking to participate in these markets to understand their roles, regulations, and best practices. By doing so, the market is compliant, secure, and prosperous. With increasingly accessible technology making significant advancements in allowing investors access to this market, the private capital markets are sure to only become more popular and accessible in the near future.