Policy debates about private capital markets increasingly revolve around access. Governments want more capital to flow to young and innovative firms, while regulators ask whether private markets should remain reserved for wealthy and professional investors or be opened more broadly. These debates are taking place against two major changes in advanced economies. Public stock market listings have declined while private capital markets have expanded (Stulz 2020, Ewens and Farre-Mensa 2022). At the same time, income and wealth have become increasingly concentrated at the top (Piketty et al. 2018, Saez and Zucman 2016, 2020, Smith et al. 2023, Auten and Splinter 2024).

The usual policy argument is that startups face financing constraints. If tax incentives or lighter regulation help young firms raise money, then the result may be more entrepreneurship, innovation, and job creation. Yet, the same policies may also have distributional consequences. If access to private companies is limited to wealthy investors, and if those investments generate high returns, then private market growth may also become a channel through which inequality rises.

In Gocmen et al. (2026), we study this possibility over the last two decades in the US. We ask whether high-net-worth individuals (HNWIs) have become more active in private capital markets, whether their investments have affected firms’ decisions to remain private, and whether the returns that they have earned have contributed to rising income and wealth inequality.

There are two reasons why high-net-worth individuals’ growing participation in private capital markets could matter for economic inequalities. First, only wealthy investors can generally invest in private companies (Jensen et al. 2017, Mikhail 2022), and private business wealth is highly concentrated at the top of the income and wealth distribution (Kopczuk and Zwick 2020). If high-net-worth individuals’ private investments yield higher returns than public stocks (Kartashova 2014, Brown and Kaplan 2019, Balloch and Richers 2026), then the growth of these investments can potentially raise inequality. Second, high-net-worth individuals may provide valuable financing for startups. If that financing helps companies remain private for longer, then private market growth and the concentration of private returns may reinforce each other and therefore amplify the effects on inequality.

We focus on the US for two reasons. First, US companies account for roughly half of all financing raised in global private capital markets (Lerner and Nanda 2020). Second, the US federal government expanded the qualified small business stock (QSBS) capital gains tax exclusion after the 2008 Global Crisis (Polsky and Yale 2023). The increase in the qualified small business stock exclusion rate (from 50% to 75% in 2009 and then to 100% in 2010, before the 100% exclusion was made permanent in 2015) created a sizeable tax wedge between the taxation of QSBS and that of other long-term capital gains. This wedge provides useful quasi-exogenous variation in high-net-worth individuals’ incentives to invest in early-stage companies.

To study these questions, we combine data from PitchBook on private capital market deals, the investors participating in them, and private companies’ valuations with distributional data from the Internal Revenue Service’s Statistics of Income, the Survey of Consumer Finances, and the Forbes 400. We provide four main results.

First, US high-net-worth individuals’ participation in US private capital markets has grown considerably in recent decades. This growth was mainly driven by investments in early-stage companies rather than by their investments in more mature private companies, private debt, or real assets. US high-net-worth individuals’ investments in US startups rose from $0.4 billion in 2004 to $15 billion in 2022, tripling their contribution to the total financing raised by these startups from about 2% to 6% over the same period.

This growth matters because high-net-worth individuals’ early-stage returns exceeded those in public stock markets during this period. Using PitchBook’s data on private companies’ valuations and a dynamic selection model to account for the positive selection of observed valuations (Korteweg and Sorensen 2010), we compare what high-net-worth individuals earned on their early-stage investments to what they would have earned in public stock market indices such as the NASDAQ 100, the S&P 500, or the Russell 2000. Figure 1 shows that the accumulated value of high-net-worth individuals’ early-stage investments reached $327 billion by the end of 2022, almost double the value of their counterfactual investments in public stock markets. These average gains mask considerable dispersion: many early-stage investors earned little or lost money, while a small group earned very large returns.

Figure 1 Accumulated value of US high-net-worth individuals’ early-stage investments in US companies relative to public stock market counterfactuals

Notes: This figure describes the returns that US high-net-worth individuals earned on their early-stage investments in US companies from 2004 to 2022, comparing them to the counterfactual returns that they would have earned had they instead invested in the total return version of any of the NASDAQ 100, S&P 500, or Russell 2000 public stock market indices. The figure plots the accumulated value of their investments by the end of each year, expressed in nominal terms.

Second, we study whether the increase in high-net-worth individuals’ early-stage investments affected the probability that early-stage companies stay private. Comparing companies eligible to issue qualified small business stock with ineligible ones, we find that the reforms increased the probability that eligible firms raised financing from US high-net-worth individuals by 2.7 percentage points. Relative to the pre-reform probability of 4.3%, this corresponds to a 63% increase. The reforms also made startups 5.6% more likely to remain active private companies. In other words, the financing provided by high-net-worth individuals affected startups’ financing and listing trajectories.

Third, high-net-worth individuals’ early-stage investments contributed to rising inequality. At the state level, we exploit variation in the number of high-net-worth individuals living in each state before the qualified small business stock reforms. The intuition is that, if a state had more resident high-net-worth individuals before the reforms, then that state’s resident early-stage investments from these individuals should have increased by more after the reforms. We document such an increase in high-net-worth individuals’ early-stage investments and find that it widened the income gap between the top 0.5% and the bottom 99.5% by about 1% of the pre-reform gap. This effect was driven by an increase in realised capital gains income in the top 0.5%.

At the national level, we ask how the wealth distribution would have evolved if high-net-worth individuals had earned public stock market returns instead of the returns they actually earned on early-stage investments. Figure 2 shows that high-net-worth individuals’ excess returns on early-stage investments relative to the NASDAQ 100 account for 26% of the growth in the top 0.5% wealth share between 2010 and 2022. We also find that effects are stronger for billionaires than for millionaires.

Figure 2 Contribution of high-net-worth individuals’ excess returns to the evolution of the top 0.5% wealth share

Notes: This figure compares the baseline top 0.5% wealth share in the US from 2010 to 2022 to the counterfactual top 0.5% wealth share, constructed by replacing US high-net-worth individuals’ realised and unrealised capital gains from their early-stage investments in US companies from 2004 to 2022 with counterfactual capital gains based on the total return version of the NASDAQ 100 public stock market index. We present the counterfactuals both without and with rescaling the capital gains from PitchBook to match the total qualified small business stock (QSBS) exclusions reported in tax filings from the Internal Revenue Service (IRS).

Finally, the relationship between high-net-worth individuals’ increasing participation in private capital markets and rising economic inequalities appears to generate a self-reinforcing feedback loop. The entry of new high-net-worth individuals following the qualified small business stock (QSBS) reforms raised the value of incumbent high-net-worth individuals’ holdings, which in turn encouraged them to invest even more in early-stage companies. We also find persistence in investors’ rankings within the return distribution. This suggests that skill, networks, or access to better deals may help some investors repeatedly earn higher returns. If so, then inequality can grow not only between those inside and outside private markets, but also within the group of private-market investors.

These findings do not imply that private capital market growth is undesirable. Young firms need financing, and high-net-worth individuals can fund companies that might otherwise struggle to grow. Rather, the point is that the growth of private capital markets has implications that extend beyond how companies raise financing and why fewer companies reach public markets. It also reshapes who gains access to high-growth investment opportunities, with important consequences for the distribution of income and wealth.

Our evidence suggests that high-net-worth individuals’ increased participation in private capital markets is a relatively recent development rather than a longstanding feature of the US financial system. This shift has helped sustain companies’ ability to remain private while concentrating more capital gains among those already at the top of the income and wealth distribution. More broadly, it points to a channel through which private capital market growth and rising inequality may be mutually reinforcing: unequal access to private asset classes generates unequal returns, and those unequal returns reinforce further unequal participation and concentration.

This link may become more salient in the years ahead. If companies continue to stay private for longer, and if access to their equity remains concentrated among wealthy investors, then a growing share of aggregate capital gains may accrue before ordinary households can participate through public stock markets. Recent developments may therefore be only an early stage of a broader structural shift.

Democratising private markets does not mechanically reduce inequality. Its distributional consequences depend on whether newly admitted investors gain exposure to the same deals, at the same terms, and with the same net returns as incumbent wealthy investors, or whether they are channelled into vehicles with different fees, liquidity, governance, and performance. Pension funds could play an important role, since they may give broader segments of the population indirect exposure to private assets. Whether this mitigates or reinforces inequality depends on the returns ultimately passed through to households.

The growth of private capital markets also highlights important data limitations. Private investment remains difficult to observe systematically, and better data on transactions, company valuations, and high-net-worth individuals’ portfolios would improve our ability to measure these forces. As more value is created before companies go public, understanding who can invest, what returns they earn, and how policy shapes those opportunities is essential for understanding the future of inequality. 

References

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