There are myriad tools for conducting due diligence in the publicly traded capital markets: software programs, regulatory filings, mandatory earnings reports and more. These deep sources of information put the power of analysis in people’s hands, whether those hands belong to an investment professional or your average Joe.

But what about private equity, hedge funds and illiquid investment products? These require a bespoke set of due diligence skills that until now have been monopolized by institutional investors.

No more.

The retail market is looking to grab a bigger share of the private equity marketplace, and due diligence approaches are becoming more open-sourced. That means the tools, evaluation methodologies and analytics once held dear by endowments and the like are going mainstream. 

Interest in the private equity and private debt markets has swelled, and yet these account for less than 5% of individual investors’ assets under management, according to a report last November by Blackstone to the Securities and Exchange Commission. The report was provided to the SEC’s Small Business Capital Formation Advisory Committee and looked at ways of expanding retail access to private markets.

Here’s why: Private equity has produced higher returns and lower volatility than public markets over the past two decades, according to the report, which also noted that the median net internal rates of return on private capital have on average exceeded 10% during that same period (when natural resources were excluded). And yet, to a large extent, the retail market has been shut out from participating in this boom because of investors’ liquidity, valuation and education concerns. 

At the Financial Services Institute’s OneVoice 2020 conference in San Diego this week, one of the panels spoke on the need for more education to engender retail investor participation in the private capital markets.  

“The gulf between the institutional and retail markets is quite wide,” said panelist Thayer Gallison, vice president for due diligence at Ladenburg Thalmann Financial. “It comes down to education.”

The widespread belief, said the panelists, is that retail investors won’t be able to keep their emotions in check; they’ll want out of positions they are holding—immediately—if things go wrong with an investment. But the bane of private markets is liquidity: There is no easy way to sell positions.

An investor with a long-term mentality in the retail markets might think three- to five-year holding periods is where they will need to be when it’s really five to seven years, said panelist Nick Veronis, a managing partner at iCapital Network. It’s easy to say that illiquidity is actually beneficial in some cases: It prevents investors from making rash moves to sell when a market tumbles and when the financial evidence actually calls for buying at that time.

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