 |
From Public to Private: A Dramatic Shift in the Capital Markets
In 1996, more than 7,400 companies were listed on US stock exchanges; today, as shown in the chart below, that figure is less than half. The diminishing number of public companies and the shrinking number of outstanding shares is due to mergers, delistings and a decline in the number of Initial Public Offerings (IPOs). Meanwhile, the private capital markets have seen an equally dramatic rise and are now the most popular way for companies to raise funds in the US.
The Phenomenon of Private Capital
Private capital markets have more than doubled in the past decade. As the director of research at private-equity firm Carlyle Group LP put it, private markets have "reshaped the financial landscape."
- Private capital and debt markets totaled more than $2.4 trillion in 2017; exceeding public stock and bond markets.
- Deals known as private placements, the largest chunk of the private markets, raised at least $1.6 trillion for businesses last year alone
Impact on Investors and Businesses
While companies that issue stock and debt publicly must register with the SEC and provide intimate financial details, regulators require little (in some cases no) disclosures in private fundraising. This has been a boon to entrepreneurs in Silicon Valley as private capital can encourage innovation; allowing companies to take risks without reporting the immediate impact on profits.
Due to their lack of transparency, private investments are often restricted to institutions and affluent individuals who are deemed sophisticated enough to understand the risks. Smaller investors are typically excluded from the opportunities and therefore are unable to participate in the early growth of startups.
To illustrate the shift, consider Amazon.com vs. Facebook. Amazon followed a traditional public equity path. It went pubic as a three year old start-up in 1997. It has since ballooned into a $566 billion behemoth, giving early investors a significant fortune as it expanded into a tech, media and retail giant. Stock investors who bought shares in the IPO and held on, have made returns of 96,389%. Today, companies like Facebook wait until they are multibillion-dollar businesses before going public. Ordinary investors, without the ability to invest in Facebook while it was still private, were left out of its colossal early growth. Many others such as Uber and Airbnb Inc. have chosen to remain private. Today there are 171 companies that are considered "unicorns," meaning they have a valuation of $1 billion or more, yet they remain private.
As a result of our strategic partnership with Cliffwater we provide our clients with access to extremely interesting private equity, private debt and venture capital deals that would otherwise only available to large institutional investors. These investments are only approved for accredited investors and often the funds are locked up (unavailable) for 3 - 7 years. We believe this access is a differentiating element in the services we provide to clients, and that these investments play a unique and important role in a long term investment plan. Please let us know if you'd like to learn more.
|
|
|
Significant volatility continued last week as heightened trade tensions dominated headlines. All the major equity indexes ended the week lower with only the tech-heavy Nasdaq hanging onto slight gains on the year. The US and China upped the ante throughout the week as they traded announcements about potential new tariffs. But investors were encouraged by news that President Trump may be nearing a tentative deal on a renegotiated NAFTA agreement.
|
|
> Employment:
In mixed results, March payroll growth of 103,000 was well below expectations but wage indications from average hourly earnings did show a little pressure, up 0.3% on the month, with the year-on-year rate of 2.7%. The unemployment rate held steady at what is still a very low 4.1%.
> Earnings Preview:
First quarter earnings season kicks off this week and the S&P 500 Index could extend its streak of 35-straight quarters of exceeding earnings expectations. The new tax law, solid economic growth globally, robust manufacturing activity, and a weak US dollar are all likely to be factors in the positive results.
> EPS Estimates:
Earnings estimates for the first quarter have been driven sharply higher (by about 6% so far this year) almost entirely because of the Tax Cuts and Jobs Act. The reduction in the corporate tax rate is the biggest factor; however, individual tax cuts, incentives to encourage capital investment, and repatriation of overseas cash could have driven some of the increase as well.
|
|
New Market Wealth Management is pleased to continue our Strategic Discussions series this Spring with:
Blockchain, Cryptocurrencies, and the Future of the Universe
For years people have been talking about blockchain technology and cryptocurrencies. At first they seemed like fringe ideas, but there is growing realization that this decentralized technology will fundamentally change how business is transacted. And like all disruptive technologies, there will be winners and losers.
Our featured speaker, C
hris Solarz, is a Managing Director at Cliffwater, a firm which advises large institutional investors on private equity and venture capital opportunities. Chris will offer his perspective on why this technology may indeed change the world as we know it, and how investors can participate.
Wednesday, May 2, 2018 from 12:00-1:30 pm in Costa Mesa, California.
|
|
New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
|
|
|
|
| |
|
|
|
|
