4 minute read 30 Jun 2021
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How the shift from public to private capital impacts retail investors

By Anna Anthony

EY UK Managing Partner, Financial Services

Passionate about helping the financial services industry become a force for social good. Champion of creating a culture of equality where people feel they belong. Keen wildlife photographer.

4 minute read 30 Jun 2021

Following the Leaders’ Perspective webcast, we look at how the shift of capital away from public markets is impacting retail investors.

In brief:

  • An increasing number of companies are staying private rather than listing on public markets.
  • Private investment opportunities are typically harder for retail investors to access, but there is evidence that they deliver better returns.
  • We examine how a combination of regulatory changes and market forces can close the gap between public and private capital.

As an increasing number of companies remain private or actively delist from public markets, how can we make sure retail investors — who typically can’t access much of this market — aren’t left behind?

This was one of the key questions raised in a recent EY webinar which discussed the current shift of public capital to private, and for me, there are three key factors creating cause for some concern:

  1. Retail investors cannot currently participate as easily in the private market as they can in public markets.
  2. The companies listed on public markets may not deliver the best returns for people now or in the future. We are seeing high growth in many sectors that are under-represented on the stock market today. The relative weighting of extraction industries on the public markets means they are also at higher risk of carbon transition, which may not best match the needs of people who are looking to manage their wealth in the longer term or fund retirements.
  3. More people now need to save independently for life events. People are living longer and Defined Contribution pensions need to be managed post-retirement, which means there is a need for access to a broader range of investment options.

The importance of financial services to the wider economy — and to people’s everyday lives — cannot be underestimated. Our growing need for independent savings, the lack of access to the private market, and the disparity in return on investment now, and in the future will only exacerbate income inequality.

The search for yield in a low interest rate environment

In the current low interest rate environment, many institutional investors have sought better returns by funding private companies or supporting venture capital or private equity firms. However, these are less liquid assets, and retail investors face two key barriers if they want to access them. Firstly, and rightly, regulatory safeguards have been put in place to make sure the average retail investor understands the types of assets they are investing in, and the risks associated. If you are not a sophisticated investor or a high-net-worth investor, both of which are quite niche categories, you cannot directly invest in private markets. These consumer protection rules are in place to protect people from losing hard earned money, but unfortunately there are very limited alternative routes for them to gain exposure to these assets.

Which leads me to the second barrier — the lack of appropriate fund vehicles to support retail investors accessing illiquid investments. It is true that, if saving into a pension fund or long-term saving instrument, the public can benefit from exposure to unlisted assets through that fund. However, for people who are looking to invest independently the options are limited.

A natural rebalancing

It’s worth recognising two industry trends that may naturally go some way to addressing the issue:

  1. The shift towards stakeholder capitalism, which is seeing large publicly listed companies focus on creating long-term value, has the potential to help public companies improve long-term returns for investors.
  2. Private companies are adopting some of the characteristics of public companies in areas such as enhanced corporate reporting, particularly around ESG factors, which will increase transparency and perhaps make them more suitable for retail investing in the longer term. 

These shifts are subtle and complex, but they could be a sign that private and public capital are becoming more, not less, alike, and are potentially narrowing the ‘opportunity gap’ for investors.

Looking ahead

The fact remains that retail investors in the UK find it hard to access private markets. Taking into account the evermore demanding growth from private markets, the continued shift to Defined Contribution pensions, longer lifespans, and the need for families to save significant amounts of money to fund education, you can see the potential pitfalls that would negatively impact the wealth of society at large and widen the wealth gap.

We are already seeing the Government respond with the Kalifa Fintech review, a listing review proposing changes to how the Financial Conduct Authority (FCA) can develop its rule book, and a long-term asset fund framework. Emerging trends in private and public markets to focus on long-term value and ESG may also help rebalance the scorecard. Nevertheless, continued focus by industry and government to make our markets more fit for purpose is essential for the individual investor.


The shift from public to private capital risks is putting retail investors at a disadvantage, limiting their opportunities to save and fund their retirement pensions. A combination of regulatory adjustment and ESG-shifting market trends can help to address this issue.

About this article

By Anna Anthony

EY UK Managing Partner, Financial Services

Passionate about helping the financial services industry become a force for social good. Champion of creating a culture of equality where people feel they belong. Keen wildlife photographer.