In the landscape of modern finance, a quiet but profound shift is underway. The number of publicly traded companies in the United States has plummeted by nearly 50% since the late 1990s, dropping from around 8,800 in 1997 to just under 4000 by the end of 2024. Similarly, the Wilshire 5000 index, which once encompassed 5,000 equities when launched in 1974, now tracks only about 3,600. This contraction isn’t merely a statistical curiosity—it’s a symptom of deeper structural changes in how businesses access capital and operate under scrutiny.
At the same time, private equity (PE) markets are expanding vigorously, with assets under management (AUM) projected to balloon to $65 trillion globally by 2032. Deal values in U.S. PE surged 38% in the first half of 2025 alone, despite broader economic headwinds like tariff uncertainties. This article explores the intertwined reasons behind the shrinking pool of public companies and the booming private equity sector, revealing a financial ecosystem increasingly favoring opacity over openness.
The Exodus from Public Markets: Burdensome Costs and Regulations
One of the primary culprits behind the decline in publicly listed firms is the escalating cost and complexity of going—and staying—public. Launching an initial public offering (IPO) has become prohibitively expensive, with underwriting fees, legal expenses, and marketing often totaling tens of millions of dollars. This financial hurdle deters smaller and mid-sized companies from tapping public markets, especially when initial listings can take months or years to prepare.
Compounding this are stringent regulatory requirements imposed by bodies like the Securities and Exchange Commission (SEC), which demand exhaustive disclosures, audits, and compliance efforts. The median U.S. public company now spends 4.1% of its market capitalization annually on compliance alone—a figure that has risen sharply as reporting mandates proliferate. Annual reports, for instance, have lengthened by 46% over the past five years, turning what was once a straightforward exercise into a bureaucratic marathon.
Beyond the upfront and ongoing costs, public companies face relentless pressure from quarterly earnings expectations, which can force short-term decision-making at the expense of long-term innovation. This “quarterly capitalism” discourages founders and executives who prefer the flexibility of private ownership. As a result, initial public offerings have dwindled dramatically: from a peak of 677 in 1996 to just 133 by 2016, with only a fleeting resurgence in 2020–2021 fueled by special purpose acquisition companies (SPACs).
Meanwhile, delistings outpace new listings, driven not just by voluntary withdrawals but also by mergers and acquisitions (M&A). Larger firms routinely swallow smaller public targets, consolidating the market and reducing the total count. From 7,300 public companies in 1996, the U.S. tally has shrunk to around 4,300 today.
The Private Equity Boom: A Haven for Capital and Control
As public markets grow less appealing, private equity has emerged as a robust alternative, fueling unprecedented growth in the sector. Globally, PE fundraising may have dipped 24% year-over-year in 2024 due to economic uncertainty, but distributions to investors hit their third-highest level on record, exceeding capital contributions for the first time since 2015. This liquidity boost has restored confidence, paving the way for a rebound. Large PE deals (over $500 million) surged in value and volume in 2024, with exit activity—particularly sponsor-to-sponsor sales—climbing steadily. In the U.S., first-half 2025 deal values jumped 38%, even as overall counts softened amid tariff-related volatility. Q1 alone saw blockbuster transactions, like Sycamore Partners’ $23.7 billion acquisition of Walgreens Boots Alliance, underscoring PE’s appetite for transformative plays.
Several factors propel this expansion.
First, an abundance of “dry powder”—uncommitted capital—totaling $1.2 trillion in buyout funds as of mid-2025, compels general partners (GPs) to deploy funds aggressively, often into undervalued or distressed assets.
Second, improving financing conditions, including doubled new-issue loan values for PE-backed borrowers in 2024, have lowered buyout costs despite lingering higher interest rates.
Third, PE’s historical outperformance—beating the S&P 500 since 2000—draws institutional and high-net-worth investors seeking diversification and higher returns, albeit with illiquidity premiums.
Data from multiple sources, including Hamilton Lane and Bain & Company, show that private equity outperformed public markets across most 10-year rolling periods, with the S&P 500’s performance being surpassed by private equity over the 25-year period. The Cambridge Associates US Private Equity Index delivered a 15.75% return over a 15-year horizon ending in March of 2025, versus the S&P 500 earning closer to 13.8% over the same time. Over a 25-year period the index generated a near 12% annual return vs 8.5% for the S&P 500, generating significant value-add over public market equivalents.
However, this outperformance is not uniform across all periods or fund managers. Recent years have presented challenges due to high interest rates, and returns are highly dependent on selecting the better top-tier managers, as the dispersion between top and bottom performers can vary substantially.
Innovation in fund structures, such as continuation vehicles and open-end funds, further enhances appeal by addressing liquidity demands from limited partners (LPs). Looking ahead, 30% of LPs plan to hike PE allocations in the next year, signaling sustained momentum.
The sector’s scale is staggering. PE-backed companies have ballooned from fewer than 1,900 in 2000 to over 11,200 today, with AUM rocketing from $600 billion to $8.2 trillion in the same period. This growth isn’t isolated; it’s intertwined with the public market retreat, as PE firms increasingly orchestrate “public-to-private” (P2P) deals, taking listed companies off exchanges to unlock value away from public gaze.
The Symbiotic Shift: How Decline Fuels Ascendance
The dwindling number of public companies and PE’s rise are two sides of the same coin. Ample private capital allows startups and mature firms alike to scale without the rigors of public listing—unicorn valuations in the billions are now routine in private rounds, sparing entrepreneurs the compliance quagmire. PE, in turn, thrives on this pool, acquiring public firms weary of regulatory burdens and transforming them under private stewardship. Public-to-private transactions, for example, soared 65% in value across Europe in 2024, a trend echoing in the U.S. This dynamic reduces public market diversity, concentrating investment choices among fewer, larger stocks and amplifying volatility—as seen in the 2025 market turbulence.
Yet, this shift raises questions about market health. Fewer public listings limit retail investor access to growth stories, potentially widening wealth gaps, while PE’s opacity can obscure risks like over-leveraging. Regulators debate easing burdens to revive IPOs, but with PE’s allure—deeper sectoral expertise, long-term focus, and fewer disclosure mandates—the tide may not turn soon.
A New Era of Capital: Opportunities and Challenges Ahead
The contraction of public markets and expansion of private equity mark a maturation of global finance, where efficiency and privacy trump transparency for many players. As of October 2025, with stabilizing economies and proactive dealmaking, PE’s trajectory points upward, even amid geopolitical storms. For investors, this means navigating a bifurcated world: public markets for liquidity and breadth, private ones for alpha and exclusivity. Policymakers and exchanges should adapt—perhaps through streamlined regulations or incentives—to prevent further erosion. In the end, the message is clear: in today’s capital markets, staying private isn’t just viable; it’s often the smarter play.
In the case of retail investors, the PE markets remain elusive. However, in recent years the combination of co-investment opportunities and public evergreen funds with limited liquidity have given some investors more access to the PE markets. However, these opportunities typically require an investor to meet one of the following criteria:
Accredited Investor – $200k/$300k income or $1M net worth; or professional licenses
Qualified Purchaser – $5M in investments (joint with spouse)
This means that not only is access to these opportunities limited. But investors that do meet these requirements should give serious consideration to the lack of liquidity that these opportunities present, and should discuss this with their financial advisor in connection to their longer term financial plans.
About the Author
Joseph M. Favorito, CFP® is a Certified Financial Planner® as well as the founder and managing partner at Landmark Wealth Management, LLC, a fee-only SEC registered investment advisory firm. He specializes in helping individuals and families develop comprehensive financial strategies to achieve their long-term goals.