>Now those regulations are being undermined by this new backdoor approach, and so even public and regulated investments are becoming more risky. It’s a bad trend and it will only reverse when people inevitably follow the incentives and there’s a big crisis.
It's hardly "backdoor" when pension funds and other institutions could always have bought private companies. If anything the recent shift to ETFs and passive investing is a move in the opposite direction. In the past such institutions would have managed their portfolios in-house, ie. private equity.
I feel like it adds a huge layer of opacity. If you buy a private company, you have to monitor its financials and potentially report them. If you buy a private fund, you have to report the valuation of the fund. If the valuation of the fund just tends to go up (as many such funds do), you won’t necessarily know if this actually reflects the prospects of the underlying companies or just the impression of other investors. The impact of adding these layers is not necessarily efficiency (each layer of management adds more cost), but it is increasing distance from the messy short-term ups and downs of real businesses.
It's hardly "backdoor" when pension funds and other institutions could always have bought private companies. If anything the recent shift to ETFs and passive investing is a move in the opposite direction. In the past such institutions would have managed their portfolios in-house, ie. private equity.