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Private Markets: Your Days Are Numbered.

A very brief take.

It's been interesting to discuss The Medici Project with fund managers and venture capital partners, particularly because of the entrenched belief that private and public markets should remain distinct. This view is often supported by arguments about the complexity of deals, the nature of investments, and the qualifications of managers. However, these distinctions seem outdated, rooted in a 20th-century mindset unadjusted for our digital age.

Fundamentally, both market types involve investors entrusting capital to a third party in exchange for equity or debt, with little practical difference in the roles of fund managers and company directors: take on entrusted capital, defend and grow that capital. The complexity often cited in private market deals doesn't substantively differentiate them from public markets. Private investments may be slightly more unique but still fundamentally represent either equity or debt in an asset, and public market funds & companies execute large complex deals on a frequent basis; if they didn’t, JPMorgan, Goldman Sachs, and all their compatriots would have very quiet schedules. 

Historically, the public markets valued specific active fund managers highly. Back in the 1980s, being a hot-shot mutual fund manager was really quite sexy. However, today, data has increasingly challenged their superiority, instigating a shift towards cost-effective passive management: “buy an index fund”—it’s so common it’s almost a meme. There are of course still hot-shot active managers in the public markets, but they don’t carry anywhere near the clout they used to, and they are under much greater market scrutiny. 

I believe that this trend will extend to private markets. Despite the nuanced nature of private deals, the rising capabilities of AI and the increasing call for transparent data from investors and regulators are making expensive managers less justifiable, and one day soon, they won’t be able to hide behind the convenience of a siloed and disjointed industry. We have already seen private market management fees drop in recent years; as transparency and choice increase, this trend will only continue. 

Additionally, the introduction of blockchain technology promises even greater transparency and efficiency, which will challenge the exclusivity once prized in private markets. When the public market presented these options to them in the 20th century, they jumped on them; when online broker-dealers offered cheaper transactions and better data tools at lower prices, they jumped on them. When cheap, transparent, and liquid investment becomes available in public markets, you’ll have a tough time convincing me that investors won’t once again jump on them. Jeff Bezos understood consumers' needs in much the same way, which is why we now all buy books from Amazon, not Barnes & Noble. Investors are no different.

Even "morally," (for want of a better term) this trend makes sense. After all, what is better for society: a capital landscape where opportunity for growth is owned by a few controlling managers, with most investors barred from access; or a world where all markets are open, free, and accessible? I know which one I think will win.

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