FINANCIALIZATION OF PRIVATE EQUITY

Summary from the TLDR Crypto newsletter

Private equity represents the last major financial sector to undergo financialization, with current secondary markets suffering from heavy illiquidity, outdated orderbook technology from the 1600s, and premium-heavy structures requiring 10% broker fees. Street aims to introduce spot prices, futures, hedging, options, and money markets into private equity, addressing the five dimensions of liquidity: tightness, depth, immediacy, breadth, and resiliency that directly impact investor costs and capital issuer pricing. Research shows investors demand higher returns for illiquid securities, with the illiquidity premium representing compensation for execution, inventory, and funding risks that compound during market stress, as demonstrated during events like the March 2020 "dash for cash" when even Treasury liquidity evaporated. Street's approach builds on regulatory frameworks established since the 1933 Act, including recent expansions through Regulation Crowdfunding and Regulation A that have enabled $1.3 billion in retail fundraising despite wealth screens that limit private placement access to approximately 12-13% of US households with qualifying net worth thresholds.