While the IPO market appears to be waking from a long slumber with IPOs increasing by 55% versus Q1 2024, interest in private markets continues to grow. The obtuse rule upon regulation approach by policymakers for public markets has had its unintended but obvious effect of diminishing the number of publicly traded firms. Today, firms are striving to remain private for as long as possible to dodge the excessive costs of being public, not to mention the actions of feeble policymakers that seek new, unnecessary rules.
A report distributed yesterday by Brown Brothers Harriman surveys wealth managers and institutional money, indicating they feel they need to invest more in private markets. In fact, these investors feel they are falling behind, as 94% of those surveyed believe their exposure to private markets has been “limited and they need to catch up.”
The inaugural Private Markets Investor Survey reveals that the investor profile in private markets is evolving as entities strive to cater to “high-net-worth (HNW) and retail-like investors.” The report focuses on institutional investors and wealth advisors that cater to HNWs and Accredited Investors, but the message holds true for the broader marketplace.
Some interesting data points from those surveyed:
- Institutional investors hold 21.9% of AUM in private markets
- Wealth advisors indicate that 14.5% of AUM is in private markets
One of the biggest hurdles is liquidity, the ability to book a return on an investment in a traditionally illiquid market.
- 59% of all investors prefer products with a liquidity window of 4-6 years
- Both institutional (47%) and wealth (48%) investors noted that new products offering increased liquidity would prompt them to increase their exposure to private markets
- 34% of all investors plan to invest in ETFs with significant exposure to private markets, and 57% are curious to hear more about such products.
While liquidity is a significant challenge, today there are platforms like EquityZen or Forge that offer exit opportunities for holders of private securities, and more platforms are poised to do the same. Distributed ledger technology can also be incorporated to reduce a certain level of friction in the trading process. In the UK, the new PISCES platform seeks to provide a central location for trading private securities.
Simon Tang, Head of US at Accelex, says the research highlights what they have been saying for many months. They have been witnessing an “accelerated shift towards private markets as investors try to catch up and capitalise on the consistent benefits these assets deliver compared to traditional public markets.”
“As capital flow increases into these markets, so too will the deal volume and, in turn, the volume of complex, often inaccessible data that limits institutional investors’ decision-making abilities. To extract real value, investors need access to clear, digestible data that provides them with full transparency on the market and helps them make data-driven decisions,” says Tang.
As for policymakers everywhere, they need to explore ways to enhance both private and public markets. Too frequently, the people making decisions on capital markets do not understand them. They also need to develop a strategy for increasing access to more investors, not fewer. Highly sophisticated investors have been tapping private markets for years, jumping ahead of the queue to book capital gains before a potential public listing. Everyone should have the same opportunity.