Robinhood’s
boss thinks there’s something fundamentally broken about how global capital
markets work. Vlad Tenev, the CEO who built his fortune democratizing stock
trading, now says it’s a “tragedy” that regular investors can’t
access private markets where the real money gets made.
Robinhood Boss Says Wall
Street’s Biggest Secret Is Unfair
Speaking on
Bloomberg
Wealth, Tenev didn’t mince words about what he sees as Wall Street’s
biggest inequity. “A big tragedy is that private markets are where the
bulk of the interesting appreciation and exposure is nowadays,” Robinhood’s Tenev told
host David Rubenstein. “It’s a shame that it’s so difficult to get
exposure in the US.”
The
comments highlight a growing frustration among retail trading platforms as
private companies stay private longer and capture more value before going
public. Companies like SpaceX, OpenAI, and other tech darlings have generated
massive returns for institutional investors while everyday Americans watch from
the sidelines.
What’s
important here, private market investments dramatically outperform public
markets over the long term, generating returns that can be 400-500 basis points
higher annually. The wealth creation difference is staggering – while public
market investors earned 6.6x their money over 25 years, private market
investors generated 19.9x returns according to Cambridge Associates’ comprehensive
data.
The Numbers Don’t Lie
Private
equity has delivered an average annual return of 13.1% over 25 years,
significantly outpacing the S&P 500’s 8.6% return during the same period.
Even more
compelling data comes from MSCI Private Capital Solutions, which shows that
since 2000, private equity has generated a 13% net annualized return compared
to the Russell 3000’s 8% return. This represents outperformance of 486 basis
points annually.
The
illiquidity premium alone adds 2-4% annually to private equity returns over the
long run. This premium compensates investors for giving up the ability to sell
their investments quickly, but the trade-off has proven highly rewarding for
those who can afford to wait.
Private
equity has outperformed public markets in 97 out of the last 100 quarters when
looking at 10-year rolling returns. Even during the three quarters of
underperformance, private equity regained its lead in the immediately following
quarter.
Robinhood’s European
Experiment
Tenev isn’t
just complaining about the problem. His company has already started testing
solutions, though not without controversy. Last month, Robinhood rolled out
tokenized products to European customers that supposedly give them exposure to
private companies like OpenAI without actually owning equity in those firms.
The move
raised eyebrows among regulators and industry watchers who questioned how these
products are valued and whether retail investors truly understand what they’re
buying. Critics worry about transparency and whether these complex instruments
could blow up in customers’ faces.
But Tenev
seems undeterred. “We’re obviously working to solve that,” he said,
suggesting more products could be coming to bridge the gap between retail
investors and private markets.
Robinhood
is not the only company currently offering such solutions. Several major
cryptocurrency exchanges have joined this trend as well, partnering with firms
like xStocks, which specializes in asset tokenization.
Why Private Markets May Be
Too Risky for Regular Investors
The
fundamental mismatch between how private markets operate and what everyday
investors need could create dangerous situations for both individuals and the
broader financial system.
The UK’s
Financial Conduct Authority delivered
a stark warning about this trend. Deputy Chief Executive Sarah Pritchard
emphasized that while some people might benefit from private market exposure
“with the right information and support,” the reality is that
“for others, it will not” be appropriate. The regulator’s position
acknowledges a harsh truth – these investments simply aren’t designed for most
people.
The core
problem lies in what experts call liquidity mismatch. Unlike stocks that you
can sell instantly, private market investments lock up your money for years
without any guarantee you can get it back when you need it. Moody’s research
highlighted this critical flaw: “Retail investors often require quicker
access to their capital and have less long-term investment flexibility”
compared to the pension funds and endowments that traditionally dominate these
markets.
Even more
troubling is what might happen if retail money floods into private markets too
quickly. Moody’s research suggests this could trigger a dangerous race among
fund managers to deploy capital, potentially leading them to “compromise
on underwriting standards or stretch into riskier assets to keep pace with
inflows.”
Wall Street Takes Notice
The private
markets boom has caught everyone’s attention, not just regulators and fintech
upstarts like Robinhood. Earlier this month, banking giants JPMorgan Chase and
Citigroup announced they’re expanding research coverage to include private
companies in hot sectors like artificial intelligence and aerospace.
The numbers
explain why. Private company valuations have been surging for years, creating
paper fortunes for those lucky enough to get in early. Meanwhile, the
traditional initial public offering market has struggled, with many companies
choosing to raise money privately rather than face the scrutiny of public
markets.
This trend
has created what Tenev calls the “greatest remaining iniquity” in
American finance. While pension funds, endowments, and wealthy individuals can
write checks to private equity firms and venture capital funds, regular
investors are largely shut out by regulations designed to protect them from
risky investments.
The Access Problem
The irony
isn’t lost on anyone. Robinhood made its name by eliminating trading
commissions and making it easier for millennials to buy stocks and options. But
when it comes to the investments that have generated the biggest returns over
the past decade, even Robinhood’s millions of users are stuck on the outside
looking in.
Current
regulations require investors to be “accredited” to participate in
most private investments, meaning they need either $1 million in net worth or
$200,000 in annual income. Those rules were written decades ago to protect
unsophisticated investors from losing their shirts on risky deals.
But critics
argue these outdated thresholds now serve mainly to protect the wealthy’s
access to the best investment opportunities. While a middle-class investor can
day-trade meme stocks on Robinhood, they can’t buy shares in the next big tech
startup.
“That’s
where I would point to as the greatest remaining iniquity and opportunity in
our capital markets,” Tenev said, making clear he sees this as more than
just a business opportunity for his company.
The
question now is whether regulators will go along with efforts to democratize
private markets, or whether they’ll stick with rules designed for a different
era of finance.
Robinhood’s
boss thinks there’s something fundamentally broken about how global capital
markets work. Vlad Tenev, the CEO who built his fortune democratizing stock
trading, now says it’s a “tragedy” that regular investors can’t
access private markets where the real money gets made.
Robinhood Boss Says Wall
Street’s Biggest Secret Is Unfair
Speaking on
Bloomberg
Wealth, Tenev didn’t mince words about what he sees as Wall Street’s
biggest inequity. “A big tragedy is that private markets are where the
bulk of the interesting appreciation and exposure is nowadays,” Robinhood’s Tenev told
host David Rubenstein. “It’s a shame that it’s so difficult to get
exposure in the US.”
The
comments highlight a growing frustration among retail trading platforms as
private companies stay private longer and capture more value before going
public. Companies like SpaceX, OpenAI, and other tech darlings have generated
massive returns for institutional investors while everyday Americans watch from
the sidelines.
What’s
important here, private market investments dramatically outperform public
markets over the long term, generating returns that can be 400-500 basis points
higher annually. The wealth creation difference is staggering – while public
market investors earned 6.6x their money over 25 years, private market
investors generated 19.9x returns according to Cambridge Associates’ comprehensive
data.
The Numbers Don’t Lie
Private
equity has delivered an average annual return of 13.1% over 25 years,
significantly outpacing the S&P 500’s 8.6% return during the same period.
Even more
compelling data comes from MSCI Private Capital Solutions, which shows that
since 2000, private equity has generated a 13% net annualized return compared
to the Russell 3000’s 8% return. This represents outperformance of 486 basis
points annually.
The
illiquidity premium alone adds 2-4% annually to private equity returns over the
long run. This premium compensates investors for giving up the ability to sell
their investments quickly, but the trade-off has proven highly rewarding for
those who can afford to wait.
Private
equity has outperformed public markets in 97 out of the last 100 quarters when
looking at 10-year rolling returns. Even during the three quarters of
underperformance, private equity regained its lead in the immediately following
quarter.
Robinhood’s European
Experiment
Tenev isn’t
just complaining about the problem. His company has already started testing
solutions, though not without controversy. Last month, Robinhood rolled out
tokenized products to European customers that supposedly give them exposure to
private companies like OpenAI without actually owning equity in those firms.
The move
raised eyebrows among regulators and industry watchers who questioned how these
products are valued and whether retail investors truly understand what they’re
buying. Critics worry about transparency and whether these complex instruments
could blow up in customers’ faces.
But Tenev
seems undeterred. “We’re obviously working to solve that,” he said,
suggesting more products could be coming to bridge the gap between retail
investors and private markets.
Robinhood
is not the only company currently offering such solutions. Several major
cryptocurrency exchanges have joined this trend as well, partnering with firms
like xStocks, which specializes in asset tokenization.
Why Private Markets May Be
Too Risky for Regular Investors
The
fundamental mismatch between how private markets operate and what everyday
investors need could create dangerous situations for both individuals and the
broader financial system.
The UK’s
Financial Conduct Authority delivered
a stark warning about this trend. Deputy Chief Executive Sarah Pritchard
emphasized that while some people might benefit from private market exposure
“with the right information and support,” the reality is that
“for others, it will not” be appropriate. The regulator’s position
acknowledges a harsh truth – these investments simply aren’t designed for most
people.
The core
problem lies in what experts call liquidity mismatch. Unlike stocks that you
can sell instantly, private market investments lock up your money for years
without any guarantee you can get it back when you need it. Moody’s research
highlighted this critical flaw: “Retail investors often require quicker
access to their capital and have less long-term investment flexibility”
compared to the pension funds and endowments that traditionally dominate these
markets.
Even more
troubling is what might happen if retail money floods into private markets too
quickly. Moody’s research suggests this could trigger a dangerous race among
fund managers to deploy capital, potentially leading them to “compromise
on underwriting standards or stretch into riskier assets to keep pace with
inflows.”
Wall Street Takes Notice
The private
markets boom has caught everyone’s attention, not just regulators and fintech
upstarts like Robinhood. Earlier this month, banking giants JPMorgan Chase and
Citigroup announced they’re expanding research coverage to include private
companies in hot sectors like artificial intelligence and aerospace.
The numbers
explain why. Private company valuations have been surging for years, creating
paper fortunes for those lucky enough to get in early. Meanwhile, the
traditional initial public offering market has struggled, with many companies
choosing to raise money privately rather than face the scrutiny of public
markets.
This trend
has created what Tenev calls the “greatest remaining iniquity” in
American finance. While pension funds, endowments, and wealthy individuals can
write checks to private equity firms and venture capital funds, regular
investors are largely shut out by regulations designed to protect them from
risky investments.
The Access Problem
The irony
isn’t lost on anyone. Robinhood made its name by eliminating trading
commissions and making it easier for millennials to buy stocks and options. But
when it comes to the investments that have generated the biggest returns over
the past decade, even Robinhood’s millions of users are stuck on the outside
looking in.
Current
regulations require investors to be “accredited” to participate in
most private investments, meaning they need either $1 million in net worth or
$200,000 in annual income. Those rules were written decades ago to protect
unsophisticated investors from losing their shirts on risky deals.
But critics
argue these outdated thresholds now serve mainly to protect the wealthy’s
access to the best investment opportunities. While a middle-class investor can
day-trade meme stocks on Robinhood, they can’t buy shares in the next big tech
startup.
“That’s
where I would point to as the greatest remaining iniquity and opportunity in
our capital markets,” Tenev said, making clear he sees this as more than
just a business opportunity for his company.
The
question now is whether regulators will go along with efforts to democratize
private markets, or whether they’ll stick with rules designed for a different
era of finance.
This post is originally published on FINANCEMAGNATES.
