In a report by Morgan Stanley, it has been observed that companies are choosing to stay private for longer periods before opting for an Initial Public Offering (IPO). Over the past twenty years, the average private company has remained private for approximately 11 years, a significant increase from the previous median age of eight years. This shift has implications for IPO investors who are now receiving stocks that are already close to their peak valuations.
Morgan Stanley’s equity strategist, Edward Stanley, points out that value creation is increasingly happening before companies go public. Recent examples like Snowflake and Airbnb have shown that their market valuations at the time of going public were not significantly higher than their current valuations. Snowflake shares have experienced a notable decline of 46% since becoming a public company, while Airbnb’s performance has been rather modest with just a 4% increase since its IPO.
Experts in the field echo Morgan Stanley’s observations, highlighting the growing trend towards private markets. Deepwater Asset Management’s managing partner, Gene Munster, notes that investors are now able to access value and growth opportunities in private markets that were once exclusive to public markets. This shift is driven by factors such as liquidity and growth potential in older companies that have chosen to remain private for an extended period.
While the allure of private markets is growing, novice investors may face challenges in accessing these opportunities. High minimum investment requirements, steep fees, and the lack of public exchange investment vehicles are some of the hurdles that investors need to overcome. However, as investor demand for private market investments rises, these barriers are expected to diminish, providing more opportunities for a wider range of investors.
The landscape of public offerings has also shifted, with a decrease in the number of publicly listed companies by more than 40% in the last two decades. The decrease in available public stocks means that investors have a more limited pool of options when it comes to choosing where to invest their capital. This trend, coupled with the increasing attractiveness of private markets, is reshaping the investment landscape for both individual and institutional investors.
As the investment landscape continues to evolve, it is essential for investors to adapt to these changes and explore opportunities in both public and private markets. While the allure of hot IPOs may have waned, there are still opportunities for growth and value creation in the public markets. Private markets offer a different set of opportunities and challenges, but with increasing interest and demand, the barriers to entry are expected to diminish over time.
The dynamics of initial public offerings and private markets are constantly changing. As companies opt to stay private for longer periods and the number of publicly listed companies declines, investors need to navigate these shifts and adapt their investment strategies accordingly. By staying informed and being open to exploring new investment avenues, investors can capitalize on the changing landscape and find opportunities for growth and value creation in both public and private markets.