A smoother ride appeals to many investors, but only rich ones are permitted to invest in venture or private equity or hedge funds. And the justification is weak. One argument is that ordinary investors are less able to bear the risks associated with those investments. That ability depends on the amount invested, however, not the type of investment. A better idea would be to grant access to all investors with guardrails around how much can be invested as a percentage of income or net worth.
A related argument is that ordinary investors could lose all their money in private assets and hedge funds, which is true. They can also lose their money buying individual stocks or cryptocurrencies, and there are no rules against that.
And the most ridiculous argument: Ordinary investors aren’t sophisticated enough for big-boy investments. But how are they to become more sophisticated when so many investments are closed to them?
I prefer index funds to the high-priced investments favored by endowments. I also suspect that the golden age of private equity and hedge funds is over. Still, all investors should be free to make those judgments for themselves, even if it means making painful mistakes along the way.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.
This column was provided by Bloomberg News.