The Pension Fund Paradox
A public school teacher in California has her retirement savings in CalSTRS, which allocates roughly 13% of its portfolio to private equity and venture capital. Those private market investments have been among the pension fund's top performers over the last decade. The teacher benefits from this exposure every day she inches closer to retirement.
But if that same teacher wanted to invest a few thousand dollars of her own savings in a private market fund --- the exact same asset class her pension relies on --- she is legally prohibited from doing so. She does not meet the SEC's accredited investor standard, which requires either $200,000 in annual income or $1 million in net worth excluding her home. The institutional version of her is sophisticated enough. The individual version is not. This distinction made some sense forty years ago. It makes almost none today.
The World That Built These Rules
The regulatory framework governing private markets was designed for a fundamentally different economy. In the 1980s and 1990s, companies went public relatively quickly. According to data compiled by Jay Ritter at the University of Florida, the median age of a company at IPO hovered between five and nine years during that era. A retail investor who bought shares on the public market was still buying into meaningful growth. The IPO was a midpoint in a company's value creation arc, not an endpoint.
That world no longer exists. The median company going public today is thirteen to fourteen years old. Many of the defining companies of the last two decades --- Amazon Web Services, Uber, Airbnb, SpaceX --- created the vast majority of their equity value while private. By the time ordinary investors could buy shares, the transformational growth had already been captured by venture capitalists, private equity firms, and institutional allocators.
Simultaneously, the universe of public companies has contracted dramatically. There were roughly 8,800 publicly listed companies in the United States in 1997. Today, there are fewer than 4,000. Companies are staying private longer, and many are choosing not to go public at all. The public markets are no longer the primary arena for wealth creation in the American economy. Private markets are.
The Scale of What's Off-Limits
The numbers are staggering. In 2024 alone, offerings under Regulation D --- the primary exemption for private securities --- raised approximately $2.15 trillion. To put that in context, that single year of private capital formation exceeded the total market capitalization of all but a handful of public companies. BlackRock projects the global private market will grow from $13 trillion to $20 trillion by 2030.
This is not a niche corner of finance. It is the fastest-growing segment of the capital markets, and it is almost entirely closed to the roughly 90% of American households that do not meet the accredited investor threshold. The wealth gap implications are not subtle. If you are already wealthy enough to qualify as accredited, you get access to the asset class generating the highest risk-adjusted returns. If you are not, you are confined to public equities and bonds --- assets that, while valuable, increasingly represent the mature phase of corporate growth rather than the dynamic phase.
I spent years at AngelList watching this dynamic play out at scale. We built infrastructure that made private market investing dramatically more efficient --- reducing fund formation costs, streamlining compliance, enabling thousands of funds and SPVs to operate on a single platform. But all of that efficiency still flowed through the same narrow regulatory gate. The plumbing got better. The access rules stayed frozen.
What a Fix Actually Looks Like
The good news is that a practical legislative solution exists. The Increasing Investor Opportunities Act would allow SEC-registered closed-end funds to invest in private funds without restricting participation to accredited investors. Today, an informal SEC staff position effectively prevents registered funds from allocating more than 15% of their portfolios to private funds unless their shareholders are accredited. The IIOA would eliminate that restriction.
This matters because registered funds are already subject to extensive SEC oversight. They have boards of directors, regular reporting requirements, liquidity provisions, and fiduciary obligations. They are, in other words, exactly the kind of regulated vehicle that can provide retail investors with exposure to private markets while maintaining investor protections. The question is not whether retail investors should buy raw Reg D offerings directly --- most of them should not, just as most of them should not buy individual public stocks. The question is whether they should be able to access private market returns through professionally managed, regulated funds. The answer should obviously be yes.
The Objections Don't Hold Up
The standard objection is paternalistic: private markets are too risky and too illiquid for ordinary investors. But this argument ignores several realities. First, retail investors already bear significant risk in public markets. They buy highly volatile individual stocks, leveraged ETFs, options, and meme-driven speculative instruments with virtually no regulatory friction. The SEC does not prevent a retail investor from putting her entire savings into a single biotech stock. The notion that she needs protection from a diversified private market fund managed by a registered investment adviser is incoherent.
Second, illiquidity is a feature, not a bug, for long-term investors. Pension funds and endowments deliberately seek illiquid private market exposure precisely because the illiquidity premium compensates patient capital. A teacher saving for retirement thirty years from now has a longer time horizon than most institutional investors. She is arguably the ideal candidate for private market exposure.
Third, the accredited investor standard itself is a crude proxy for financial sophistication. It measures wealth, not knowledge. A retired professional athlete with $5 million in savings and no financial training qualifies. A CFA charterholder earning $150,000 does not. The standard was never well-designed, and it has become less defensible as inflation erodes its thresholds without Congressional adjustment.
The Stakes
This is ultimately a question about who gets to participate in American capitalism's most productive asset class. The venture capital and private equity ecosystem funds the companies that drive innovation, create jobs, and generate outsized returns. For decades, those returns have accrued almost exclusively to the already-wealthy and to institutions. Ordinary investors --- the people whose labor, consumption, and tax dollars support the broader economy --- are excluded by a regulatory framework built for a market structure that no longer exists.
The fix does not require deregulation. It requires updating regulation to reflect reality. Registered funds with SEC oversight can serve as the bridge between private markets and retail investors. The IIOA provides a concrete mechanism to build that bridge. The question for policymakers is straightforward: do we want a capital markets system that compounds existing wealth inequality, or one that broadens access to the asset class where wealth is actually being created? I know which side I am on.