The number of publicly traded companies in the U.S. stock market has decreased significantly over the years, with the private-equity industry being a major factor. When a private-equity fund acquires a public company, it takes the company private, exempting it from disclosing crucial information. This trend is concerning as private equity has been growing rapidly, outpacing the overall economy. It creates an opaque economy, making it difficult to hold companies accountable and increasing the risk of corporate wrongdoing. The lack of transparency has historical parallels to the pre-Great Depression era, where corporate fraud went unchecked. The current growth of the private-equity industry poses risks to the financial system, especially with leveraged buyouts and excessive debt. The lack of information about private lending also raises concerns about potential systemic risks.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Decrease in Number of Publicly Traded Companies | Shift from public to private ownership | More companies will be privately owned | Private equity industry growth and regulatory changes |
| Lack of Transparency in the Economy | Reduced visibility of company finances and operations | Difficulty in holding companies accountable | Private equity industry’s desire for control and profit |
| Rise of Private Equity Industry | Increasing influence of private-equity firms | Private equity will continue to grow rapidly | Desire for higher returns and flexibility by investors |
| Regulatory Inaction and Abuse | Lack of oversight in private-equity deals | Potential for reckless behavior and abuse | Lack of public information and accountability |
| Potential Risks in Leveraged Buyouts | Defaulting on debt due to economic downturn | Implications could be massive for the financial system | Debt-heavy business model and rising interest rates |
| Lack of Information on Private Lending | Limited disclosure of private loans and risks | Uncertainty in assessing systemic risk | Inability to assess risks and potential consequences |
| Government Response and Regulation | Proposed rule for more information disclosure | Limited address of bad behavior and systemic risk | Awareness of the need for more transparency and accountability |