Retail capital is coming to private markets — and it’s prompting the industry to rethink everything. In this article, Jason Meklinsky explores why the influx of retail capital isn’t a threat, but a catalyst for change, highlighting the operational, compliance, and infrastructure challenges managers face — and how firms can adapt to scale responsibly while maintaining trust and efficiency.
The Institutional Limited Partners Association recently published its paper Retail Capital Analysis, highlighting concerns about the growing influx of retail investors into private markets.
At first glance, some might dismiss this as institutional LPs reluctant to share their sandbox. But that interpretation misses the point—ILPA’s observations flag valid risks that require industry-wide discussion as private markets evolve.
“The times they are a-changin’…”
Come gather ’round people wherever you roam.
And admit that the waters around you have grown — Bob Dylan
The “waters” have indeed grown. The industry today looks very different from the one we knew 15–20 years ago. Assets under management have increased multiple times over, the number of managers has expanded, and the investor base has diversified—all before any meaningful wave of retail participation.
But the evolution goes beyond size. The macroeconomic backdrop has shifted in recent years, and the shape of private markets has changed with it. Exits are slower – evidenced by the sheer number of continuation funds currently in the market, holding periods are longer, and perhaps most notably, the secondary market has exploded. Global secondary volume reached $103 billion in H1 2025, up 51% year-on-year, and is on track to surpass $200 billion —a clear sign of rising liquidity needs and structural innovation.
Seen in this context, retail capital is less a disruption and more a natural extension – opening new pools of capital for managers while meeting growing demand from individuals who want exposure to private companies. However you look at it, retail participation is coming — the real question is how fast it happens and how the industry adapts.
ILPA’s key concerns
ILPA’s paper raises important questions LPs should be asking their GPs—most of which are likely already on managers’ radars in some capacity:
- Alignment between GP investment decisions and overall fund allocation
- Matching structure and strategy in new fund models
- Impact on co-investment opportunities, as retail fees may reduce availability
- Diversion of GP time from institutional mandates to retail vehicles
- Added legal, regulatory, and compliance complexity
It also notes that only a handful of large managers are meaningfully leaning into retail today — something which speaks to the operational and scale challenges the industry must solve to support broader participation.
When volume meets reality
Even the largest managers are feeling the strain of higher volumes—especially on the administrative and compliance front. Firms tell us they’re running into real friction maintaining consistent KYC standards, not just at onboarding but across the entire fund lifecycle.
We see this every day at Sonata One. Even at this relatively early stage of democratisation, the sheer volume of private wealth managers allocating to private funds is putting pressure on investor onboarding and servicing workflows. One of the biggest pain points? Meeting administrator-level KYC requirements—particularly when the same investor’s documents must be validated by multiple fund administrators, each with their own rules.
Our solution is to standardise and centralise this process, approving investors once to a globally compliant standard — enabling a single approval to be shared across multiple funds, service providers and jurisdictions. And the demand for this is only growing, driven not just by incoming retail capital but by rising regulatory complexity, heightened expectations around investor experience and a drive for operational efficiency.
Retail capital as a catalyst for change
In this sense, retail could be exactly the catalyst the industry needs accelerate much needed change, forcing long-standing issues such as fragmented infrastructure, inconsistent standards and manual processes up the priority list.
Performance will always remain the benchmark, and institutional LPs — with deeper resources and expertise — will continue to dominate manager selection. But better, shared infrastructure benefits everyone. It makes the ecosystem easier to navigate for individuals and institutions, while giving managers the tools to scale responsibly.
The real question for private markets
Given all this, the key question for both managers and investors becomes: What does the right infrastructure for the industry’s next phase actually look like?
With advances in AI, more mature investor platforms, scalable digital tools, and the potential of tokenisation and blockchain, we finally have the building blocks. Now the industry needs to decide how best to put them together.
That means asking:
- What should next-generation platforms and standards look like?
- How do we expand access without compromising investor protection or adequate regulatory compliance?
- Where do human touchpoints remain essential for trust and confidence?
These are the questions shaping the next chapter of private markets — and the ones we’re focused on at Sonata One as we work toward building an international exchange for private funds.
If you’d like to be part of that conversation, let’s talk.
