It is essential that smaller investors are better able to benefit from private equity’s growth going forward, Grant McGlaughlin and Kareen Zimmer write.Christopher Katsarov/The Globe and Mail
Grant McGlaughlin and Kareen Zimmer are partners at Fasken Martineau DuMoulin LLP, specializing in mergers and acquisitions, private equity and cross-border transactions.
Ontario is aiming to give smaller investors access to private equity investment. Contrary to what critics are saying about the initiative, this is a good thing.
Yes, ensuring the competitiveness of Canada’s public stock markets remains critical. But the turning of the tide toward private equity began long ago, and will not turn back. Adjusting to this reality requires opening private equity to retail investors. The only real question is how.
In 1989, Harvard business professor Michael Jensen predicted that private equity would soon “eclipse” public companies as the engine of modern economies. He explained that the “genius” of private equity is that it concentrates the rewards of ownership in management more than is the case in public companies.
This greater concentration better incentivizes the pursuit of efficiency, productivity and value. This, in turn, creates more liquid markets for buying and selling corporate assets and thus, the optimal allocation of resources. It also allows management to pursue value-creation free from the pressures and expectations of public markets.
Prof. Jensen’s insights have proven to be sage. Less than 40 years later, private equity is king. The number of public companies relative to the size of the economy has shrunk. Existing public companies continue to go private. The regularity of new public companies joining the stock markets has steadily declined. Those companies that still go public typically wait longer to do so, meaning much of their growth occurs while private. These trends are all international and not limited to the U.S., Europe or Canada.
An unfortunate casualty of the decline of public markets relative to private equity is the retail investor. Most people don’t have the financial resources to invest with private equity firms, limiting them to the public markets. But if most economic growth is occurring in private markets, financial disparities between the wealthy and people of average means will only widen.
Against this backdrop, the Ontario Securities Commission began exploring opening private assets to retail investors in October, 2024. It published a consultation paper seeking stakeholder feedback on potential retail investment structures for what it called “long-term” assets, in which it includes private equity, venture capital and private debt. It identified the benefits as potentially higher returns and diversification, and the risks as illiquidity and possibly higher price volatility.
The commission adjusted its approach in May, 2025. While continuing to explore a possible overall framework, the commission invited firms looking to develop funds that give retail investors access to private assets to collaborate on bespoke investor protections, based on the specifics of each proposed fund and product. The commission affirmed that the “investment landscape is shifting, and investors are increasingly looking to diversify their portfolios with alternative investments.”
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Last November, the commission said it had been contacted by more than 20 industry stakeholders since its May, 2025, invitation, including fund managers and industry associations. It said it was watching similar developments in jurisdictions such as the United States and Britain, and was considering whether developments there could be applied in Canada. It called the project a “forward-looking initiative that will benefit both retail investors and the broader capital markets.”
The commission’s measured and incremental approach to opening private assets to retail investors is the right path forward. It is stressing the importance of investor protection, and we agree that this is vital. But, as the commission said in a webinar last December, it also recognizes that given the ascendancy of private markets, it must explore ways to keep Ontario and Canada competitive. This shows a clear-eyed understanding of the modern dynamics in public and private markets, and other provinces and territories should follow suit.
The fundamental basis of Prof. Jensen’s confidence in predicting the eclipse of the public company by private equity continues to stand decades later. It is critical that regulators keep working to make Canada’s public markets as attractive as possible, including by unwinding overburdensome regulations that contribute to startups choosing to stay private or existing public companies choosing to go private. But doing so will not erode private equity’s inherent structural advantages.
For this reason alone, we are unlikely to return to the frothy initial public offering volumes of past decades. It’s therefore essential that smaller investors are better able to benefit from private equity’s growth going forward.