CFA Institute warns of valuation opacity and systemic risk as companies shun public listings.
The balance of power between public and private capital markets is shifting in ways that have far-reaching consequences for investors, regulators, and the broader financial system, according to a new report from the CFA Institute Research and Policy Center.
The research, the first in a planned series on private market expansion, finds that private equity, private credit, real estate, infrastructure, and venture capital together account for more than $18 trillion in global assets under management.
As institutional allocations to these asset classes grow and more companies opt to remain privately held for longer, an increasing share of credit creation, corporate financing, and restructuring activity is happening beyond the reach of public markets.
Rhodri Preece, CFA, senior head of research at CFA Institute Research and Policy Center and co-author of the report, said the industry is at a turning point.
“The investment industry is at an inflection point. Recent high-profile IPOs illustrate just how much the capital formation process is changing,” he said. “Increasingly, companies are listing on public markets at a much later stage of their development, after years of growth financed through private capital.”
Preece added that this shift has implications that extend far beyond portfolio allocation to how capital markets function, how risk is distributed across the financial system, and how investors participate in economic opportunity.
“Professional standards, governance frameworks, and analytical tools will need to evolve alongside these structural market shifts,” he said.
Flexible capital
The report identifies a self-reinforcing dynamic at work. Issuers are drawn to private markets for flexible capital on their own terms.
Institutional investors are chasing diversification and higher expected returns. Asset managers are attracted by the fee premium private products command. And policymakers are actively channelling long-term private capital toward infrastructure and other strategic investment priorities.
Co-author Cheryll-Ann Wilson, PhD, CFA, senior affiliate researcher at CFA Institute, said no single constituency is responsible for the structural shift underway.
“It is being driven by the mutually reinforcing incentives and actions of issuers, asset owners, intermediaries, and policymakers,” she said. “As private markets scale, they alter mechanisms of price discovery, reshape benchmark composition, redistribute information across market participants, and influence how financial stress propagates through the system. The trajectory of private markets over the next decade will demand a recalibration of policies and practices.”
Retail investors at risk
The report flags a range of risks that accompany the expansion. Moving more capital and credit into less transparent structures can erode price discovery, complicate valuation, create liquidity mismatches, and generate conflicts of interest.
Retail investors face particular exposure as private market products reach a broader audience, potentially without the understanding needed to assess what they are buying. The deepening links between banks and non-bank lenders also raise questions about how credit stress could travel through the system in ways that are harder to trace.
For investment professionals, the report sets out a clear agenda: stronger valuation discipline, more rigorous liquidity planning, better performance measurement, and a sharper focus on governance oversight and systemic risk. Public indices, the research notes, may increasingly reflect a narrower share of corporate innovation and economic dynamism as high-growth companies choose to stay private longer.
Future installments in the series are expected to cover retail access to private markets, conflicts of interest, private credit structures, and the policy responses needed to protect investors and preserve market integrity. The research will also examine how private market assets perform within defined contribution retirement portfolios.