Fixing American Capitalism, Part 2: Access Is the Wrong Prize

I argued in Fixing American Capitalism that ordinary investors had been locked out of the growth years of American companies. SpaceX has now gone public, and the SEC has proposed opening private-market funds to retail investors. Getting into a private credit fund, which lends directly to businesses, does not tell you what is in it: the manager knows more about the loans than you do, and you cannot check his numbers yourself. That difference can be closed, first in private credit, where a loan is simpler to judge than a whole company, and then in public companies, where trust is currently manufactured by lawyers and auditors. When the buyer can see what the seller sees, the price is set by someone who knows, and the growth years can come back to the people who were supposed to own them.

Access Is the Wrong Prize

Retail investors are right to want a piece of the companies growing without them. But "democratizing access" sets the ambition too low: you should be able to own the growth years of these companies, and not just be exit liquidity for private capital when it wants to sell. The public stock market was the democratic institution for owning growing businesses. Over the years, the best of the growth years moved into private markets, where the people selling know more than the people buying.

Retail Investors Became Exit Liquidity

Amazon went public before its third birthday. SpaceX did not reach the public market until June 2026, eleven years after investors valued the whole company at roughly $10 billion. If ordinary investors could have bought at that valuation and held through its growth, the gains would have paid for college tuitions, Disney vacations, and a lot of Apple products.

When an early investor sells you its shares, the ownership record shows its name through the growth years, and yours on the line where it sells. You get the shares. The investor gets your money. The company gets a new shareholder and no new money. Retail investors became exit liquidity for the few who already got the growth.

Henry Ford famously gave his workers a raise so they could afford the cars they built. Public companies made the same bargain with households when they sold shares to finance their growth. Households supplied the money to build the business and owned a piece of what it became. Companies sold their products to people who grew personal wealth by owning the very same companies.

Young public companies used that money to do expensive new work. Their own earnings and new share sales explain 72% of the 1994-2000 R&D boom among young public tech companies.

Disclosures Are Written for the Courtroom

Did you read the prospectus for the last fund or bond you bought, or the annual report of the last stock? Hester Peirce, who served as SEC commissioner for nine years, admitted at her confirmation hearing that she did not read the prospectus before buying a mutual fund. Public companies pay auditors to make their numbers trustworthy and lawyers to make their disclosures defensible in court. A public company can be sued over any statement that later looks wrong, even a true one, so its lawyers say the minimum the rules require and wrap it in cautions, and you have a harder time finding what matters. Sarbanes-Oxley, the 2002 law tightening public-company reporting, added an audit of the controls behind the numbers and made executives sign for them, so both bills went up. That lawyer and auditor time made trust in a public company's numbers an expensive manufactured product, so companies that could stay private did, and kept their growth years private with them.

Private equity has spent the past fifteen years buying further down-market, until even your dentist and your vet got enshittified: bought with borrowed money and optimized for the next buyer, not the patient. Opening private funds to retail investors gives every private-market seller, buyout firms included, a new buyer who cannot see what he is buying.

The Manager Knows What You Don't

On September 30, the SEC released two proposals to bring private-market strategies to ordinary investors. Currently, mutual and interval funds that are open to ordinary investors cannot simply pay their managers a share of capital gains. The performance-fee proposal calls those fee rules a source of "structural disadvantage for retail investors": that is, managers have a financial reason to keep certain strategies in funds most people cannot buy.

The proposal would let more managers earn a share of capital gains in regulated funds that ordinary investors can buy. The interval fund proposal would give interval funds, which offer limited share buybacks on a schedule, more flexibility over when they return investors' money. These funds typically hold hard-to-sell assets.

This is a good step. But a ticket into the fund does not tell you what the loans are worth. The manager estimates each loan's value and reports that estimate as its mark. The Commission proposed letting retail into these funds during the same week its own staff warned against boilerplate and lumped-together figures that obscure how the marks were reached.

For each business the fund lends to, the manager negotiates what financial information it must supply and how often. The manager uses those reports to value the investment, checking the business's performance against evidence from the market. The fund's board oversees the valuation process. Its independent auditor tests the data and assumptions, including evidence that contradicts the manager's judgment.

As a shareholder, you receive disclosures about the methods, the numbers and assumptions behind them, and the uncertainty. You get their conclusions; they keep the evidence. Whoever sells you those shares knows more about them than you do.

Discussing private credit, Apollo's John Zito put it bluntly: "I literally think all the marks are wrong."

When sellers know more than buyers, buyers pay less for everything, and the sellers with nothing to hide stop showing up. The cure is not a thicker disclosure document. It is a buyer who sees what the seller sees and sets the price himself.

An Informed Buyer's Price Tests the Manager's Mark

Public companies already have market prices. Their burden is the cost of producing reports anyone can trust. The long-term goal is to make that cheaper. Private credit, loans negotiated with businesses by non-bank lenders, is the intermediate problem: a loan is simpler to examine than a whole company, the manager knows far more than the investor, and public disclosure rules change slowly.

You're on a used-car lot. A wealthy buyer brings a mechanic; you came alone. You cannot tell a sound car from a lemon, so you lower your bid. The owner of a sound car refuses to sell at that price. The lot fills with worse cars, and you lower your bid further. George Akerlof described this in "The Market for Lemons," the work that helped earn him a Nobel Prize. A buyer of a private credit fund who cannot see the loans is standing on that lot. For the wealthy fund buyer, the mechanic is a wealth manager or diligence team that reads the book before the buyer bids.

An individually negotiated loan usually has no price quoted in an active market. The fund's manager must estimate what an informed outside buyer would pay in an orderly sale, with normal time to find buyers and no forced liquidation. Accountants call the valuation Level 3 when significant numbers or assumptions in the model cannot be observed in the market. The mark is a prediction of a stranger's bid.

An institution holding an eligible fund stake can record its value in its accounts using the fund's reported net asset value, or NAV: the fund's assets minus what it owes. The holder must establish that the stake qualifies for this optional shortcut, and its auditor still needs evidence for the reported value.

Take Fund A and Fund B, holding matching loans and giving investors the same rights at the same fees. Their shares trade as tokens at the same time under the same sale conditions. The rails, Opacity's among them, enforce who may hold the shares at transfer. Evidence alone does not test a mark; a trade does, and a trade needs a share that can change hands. Both report a NAV of $100 per share.

Fund A keeps its loan records closed. The buyer pays $90. That completed trade is the print. The holder knows what someone paid, but cannot separate the price of weak loans from the price of missing information. Fund A is what crypto people fear a tokenized fund will be: a token on a closed book, Wall Street's standard with onchain settlement, and nothing more.

Fund B makes the loan list, payment records and lending terms available to the buyer. Its loan agreements give the lender continuing access to borrower bank records and permission to share that evidence with authorized buyers and holders.

One of Fund B's loans requires the borrower to keep enough cash in named accounts to cover that month's payments. The buyer receives the bank records for those accounts and the payment schedule from the agreement.

Opacity's Verified Data Network can prove that the records came from the bank. The buyer totals the available cash and subtracts the payments due in the same period, repeating the lender's test. The remainder is the borrower's cash cushion above those payments. Updated bank records let both buyer and lender see that cushion shrinking before a payment is missed. This test checks one cash requirement, not the whole loan's value. That is the fix: not thicker disclosure, evidence a buyer can check cheaply.

The buyer examines the book and lending terms, uses those checks, and decides what to offer. The buyer still pays $90. Fund A's buyer paid without seeing the loans; Fund B's buyer saw them and committed the money. The amount is the same; Fund B's price now records an informed buyer's judgment.

One informed trade is evidence; it does not yet give us a continuing market price.

Other sellers offer fund interests with the same access to loan records that Fund B provided. A sound seller opens his book to a buyer who knows how to assess the loans, so the buyer can tell his loans from a lemon seller's. The sound seller returns when the buyer's informed bid meets his price. The lemon seller takes the lower bid or stays out. As other eligible buyers inspect the books and compete for the shares, the discount for not knowing narrows. The buyer with the mechanic sets a price, so the mechanic's judgment sets the price for everyone who holds the shares.

Akerlof also described the merchant who recognizes quality and can vouch for it. He buys from a seller who knows what he owns and earns a spread by selling to a buyer who cannot tell for himself. Opening the records lets a capable buyer judge the loans for himself. That shrinks the spread the merchant earns from exclusive access to the evidence, but the skill of judging credit still pays.

Fund A's manager can give buyers the same access to source-verified loan records. Once competing funds' interests trade with a smaller discount for not knowing, Fund A's investors have a reason to demand an open book before committing more capital. If otherwise comparable funds provide one, Fund A's manager has to open his, offer better terms, or lose their investment. Keeping buyers dependent on his judgment now puts his next capital raise at risk. Making, underwriting and restructuring loans are still his job, and they still pay.

Another investor already owns Fund B shares, estimates their value at $97 per share, and records that estimate in its accounts. That holder now has to explain why its estimate exceeds the $90 an informed buyer paid for the same rights under the same sale conditions. The cash test did not establish $97; the transaction gives the auditor outside evidence against which to test it. The trade does not automatically reset the holder's accounts to $90.

As informed buyers compete and sellers keep trading, the holder can observe the bids the manager's model had to predict. An informed buyer's price tests the manager's mark.

Cheaper Disclosure Brings Growth Back to Public Investors

An informed buyer's price rewards the seller with nothing to hide and exposes the one who was counting on your not knowing. A company can be priced the same way. If a young business can prove its revenue and cash from the source, trust costs it less, and it can afford to sell shares to the public earlier, while the money still pays for hiring and expansion. Households get the growth years, and the company gets the capital, instead of early investors getting the exit.

A public company today earns trust by paying lawyers and auditors to make every number defensible. A company that lets buyers judge its claims from the evidence can also reduce the work its lawyers and auditors do to back up those claims. Its lawyers have less missing support to draft around, and the investor no longer has to take the company's numbers on its word. Opacity will bring this source-verified evidence into issuer disclosures. Proven first in private credit, these innovations will eventually find their way across the entire financial market. Making trust cheap brings more of America's growth into the public markets.

Years from now, you're unpacking books in a house the next Amazon helped you buy. One battered paperback came from its first warehouse. You bought shares the same week you bought the book, back when the company still needed your money to grow.

The book goes on a shelf. The rest of the shares stay in your account.

You owned it on the way up.