Shares placed privately are only open to institutions and other sophisticated investors who have assets of at least $100 million to invest. Everyday retail investors cannot access these shares.
Since these shares are confined to large-scale institutional investors, a longtime worry has been that trading won't be as robust as in the public markets. But the rapid growth of private placements is starting to ease those concerns. About $1.1 trillion in private securities changed hands last year, about double the volume in 2001, according to Thomson Financial.
Investment banks are also getting into the business, which is helping to create a market for these securities, experts say. Goldman launched its GS Tradable Unregistered Equity OTC Market, or GSTrUE, earlier this year. JPMorgan operates a similar trading platform, and the Nasdaq is also planning to expand into the marketplace.
"The Goldman market taps into what is becoming a larger and larger pool of sophisticated investors," said Bob Kennedy, partner in the private equity practice at law firm Jones Day. "It shows there are enough qualified buyers to create enough liquidity to get in and out of positions easily," he said.
