Private capital markets in the United States and elsewhere have been successful in providing capital and financing for economic growth and development worldwide. The fundamental integrity of U.S. markets—and the knowledge that money can be invested in a staggering array of products, free from fraud and overly burdensome government controls—creates a powerful incentive for businesses and individuals to invest.
Private investments play a critical role in the financial markets, broadening the use of investment strategies, increasing the number of participating investors, and enlarging the pools of capital available. For investors, private investments can serve a risk-management purpose since their returns are often uncorrelated to those in the equity and fixed-income markets.
The sheer variety of investing strategies that private investments employ also strengthens capital markets, particularly by improving opportunities for price discovery. Short selling, for example, contributes to the market’s process of finding correct prices.
Private investment companies absorb risks by pursuing different investment strategies that use different products and securities. The ability to trade different securities simultaneously in several markets maximizes opportunities for returns, improves risk management, and spurs innovation in financial products, services, and strategies.