Mutual Fund Investments in Private Firms

Historically a key advantage of being a public firm was broader access to capital, from a disperse group of shareholders. In recent years, such capital has increasingly become available to private firms as well. We document a dramatic increase over the past twenty years in the number of mutual funds participating in private markets and in the dollar value of these private firm investments. We evaluate several factors that potentially contribute to this trend: firms seeking extra capital to postpone public listing; mutual funds seeking higher risk-adjusted returns and IPO allocations; and, VCs seeking new investors to substantiate higher valuations. Results provide the strongest support for the first two factors