That's right. The percentage of individuals who have access to top decile hedge funds, PE funds, and VC funds (and in all three categories the top decline generates almost all the returns) is infinitesimal.

In practice, the investor base of those funds is a very small number of high-net-worth individuals and families, plus a set of long-lived private institutions such as Ivy League universities, multi-generational foundations, and the like. Sovereign wealth funds (national treasuries of countries like Abu Dhabi, China, Singapore, and Hong Kong) are becoming a larger part of that base now. (Not the US though, the US has no sovereign wealth fund.) Some big pension funds invest heavily in private equity but not as much into venture capital or hedge funds.

The result is that the vast majority of retirement savings for normal Americans -- whether managed by individuals or institutions -- can't access compelling private market opportunities.

1. The list of top performing funds is not static.

2. The number of individuals and institutions invested in these funds who actually understand the instruments these funds invest in (particularly in the hedge fund world) is infinitesimally smaller. In other words, they couldn't give you an educated explanation as to why they invested, they simply got lucky.

3. Access doesn't guarantee returns. Sending your money to John Paulson in 2008 was very rewarding; if you invested in his PFR Gold Funds, you're down more than 50% in 2013 alone. It is almost impossible to predict top performers, particularly given point 2 above, and even if you do invest in a top performing fund, at best your investment is likely to constitute a modest portion of the total funds you have invested.

4. Success is a double-edged sword for fund managers: it's possible to raise a lot more capital (management fees, yay!) and launch new funds with ease, but finding investment opportunities that can deliver meaningful results becomes increasingly difficult as the size of the positions you need to establish grows. In other words, by the time you're investing in a fund manager because of past performance, there's a good chance you've already missed the big gains.

5. If you go back decades, particularly before 2008, hedge funds on the whole provided significantly better returns than buying a major index. But in the past several years, the S&P 500 has outperformed a number of indexes that track hedge fund performance. When you consider fees, most hedge fund investors have overpaid for underperformance the past several years.

6. A number of investment banks are exploring the launch of retail investor-friendly hedge funds with modest minimums (four-figures low in some cases), and Goldman has already launched its own. This is seen as a growth market for the investment banks so you can expect a lot of action in this space in the coming years.

Compelling market opportunities, private and public, do exist and the number of financial products promising average Americans access to them has grown considerably over the past decade. If I want a leveraged investment in publicly-traded mortgage REITs, for instance, UBS has an exchange traded note I can buy tomorrow. If I want to invest in investment-grade bonds denominated in renminbi, there's an ETF for that. And so on and so forth.

The number of sophisticated (and sometimes incomprehensible) financial products available to everyone will continue to grow but that doesn't really matter: the number of individuals who will be invested in the right products at the right time, and keep their gains over the long haul, will always be small. Put simply, access has very little to do with actually being able to exploit compelling market opportunities.

Oh, I'm sure there'd be plenty of crap investment opportunities available to ordinary investors. There's an interesting idea called rational ignorance - basically, investigating an investment opportunity costs time and money, and it's irrational to spend more on investigating it than you'd lose if it failed outright.

So being able to offer poorly-regulated "high-risk investments" to normal people who can only invest a small amount would be a scammer's dream; they can't put nearly as much resources into investigating the investment, or into recovering funds if it turns out to be a scam.

Nearly all the good opportunties will continue to go to a handful of well-connected wealthy people because it's far less work to raise money that way.

Agreed on the above point that patronage/network access locks out most accredited investors from the hottest deals. PE/VC is a prime example of this, where the top decile make out like bandits. I'd like to add that speculating on IPOs is like participating in pseudo-alternative asset class - not necessarily capturing value through public equities as the author describes. The level of your earnings/expected earnings, retirement goals, age, level of risk-aversion etc. affect where you place your money. Common sense says that far fewer than 96% of Americans would be well-served having access to this class.

I think this discussion gets too polarized around "speculating on IPOs" too quickly. Think instead about the general characteristics of the overall equity market. Assume for example that you simply hold the market index.

What's happened over the last 15 years is that growth has been mostly stripped out of the public market -- due to the collapse of IPOs and the reduction in publicly listed US companies from 8800 in 1997 to 4100 now. The result is a public market that is more and more just old, slow-growing companies. That's fine if that's what you want, but for people who are investing their retirement savings over a multi-decade period, that's bad news. (E.g. the overall stock market is flat over the last 15 years adjusted for inflation -- I don't think that's a coincidence.)

People should hold money in an asset allocation (mix of equities, bonds etc.) that is appropriate for their risk profile - not necessarily in 100% index-tracking funds. You're suggesting that investors beat the market by taking on more risk. As an aside, a great deal of real value has been created by publicly listed companies over the last 15 years.

That's partly true - if we simply imagine the past but bigger, then like hedge funds, startups have a limited capital requirement and will be hard to find at a suitable early stage

However it seems the world is not shaping up like that - if we take the theory that startups will simply be the new path into high flying careers, supplanting MBAs and certain colleges, then unlike hedge finds which are capital limited, startups can take almost unlimited amounts of cash. For example if the tech startups world is a guide you should do a degree then take three years to run a startup. It sounds better than junior graduate trainee. If this holds true for even a decent percent of the world, across all industries, you could shovel cash at these guys forever.

That will take industrial levels of cash shovelling - the sort pension funds are good at, but VCs and even hedge funds really really bad at (high we are raising a limited round for 3 years at 2and20 vs give me 10% of your lifetime earnings and start now!)