High-net-worth individuals in private capital markets

What is your research about?

Over the last two decades, most developed countries have seen their private markets expand at the expense of declining public market listings. For instance, the number of companies backed by private equity (PE) funds doubled from 2006 to 2017 in the US. At the same time, according to Compustat the number of listed firms nearly halved. Despite this dramatic transformation in the role of public and private capital markets in recent years, there is very little evidence on the causes and consequences of the increasing importance of private capital markets. In terms of causes, these patterns may be explained by changes in the preferences and composition of companies (i.e. investment supply) and/or of investors (i.e. investment demand). In terms of consequences, the growing role of private capital markets may have important implications for the real economy via employment, productivity, innovation, and/or inequality. The aim of this project is to add to this agenda by studying the growing importance of high-net-worth individuals (HNWI) in private capital markets. While the role of institutional investors in private markets has already been studied, little attention has been paid to the participation of HNWI in these markets. Understanding the participation of HNWI in private capital markets is important for two main reasons. First, given the large rise in wealth concentration over the last decades across the globe, one can expect the participation of HNWI in private capital markets to have become quantitatively more relevant and hence, an important new source of financing for firms. Furthermore, to the extent that the returns of private investments are larger than public equity returns, these patterns could exacerbate income and wealth inequalities even more, since only the wealthiest and highest-earning individuals are able to gain access to such investments.

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How will the Stone Centre grant help your research?

We now aim to put the focus on the US, since it accounts for two thirds of global private capital, and the country has gone through new federal tax and financial legislation after the global financial crisis in 2008. One of the changes is the explicit encouragement of flows into private capital, thereby encouraging job creation. We plan to exploit the federal policy reforms in the United States to identify the causal effects of private investments by HNWI on inequality and firms. For this purpose, we need access to data on firm financials and private investment returns for which we require grant funding.

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What will you produce as part of your research?

We will produce:

• a research paper describing the new database and summarizing the results of the research,
• a CEPR Working Paper, as Tarun and Clara are affiliated at the Center,
• a research summary for the general public in newspapers, blogs (including contributions to the Stone Centre's website) and discuss the research with journalists, as we have already done with some of our previous research papers.

About this grant

Title of the project: High-net-worth individuals in private capital markets

Value of the grant: £50,000

Duration: September 2023 – ongoing