Investors are missing out on significant growth opportunities by failing to buy into companies before they go public, according to a new report from Willis Towers Watson.
The report “The Evolving Role of Public and Private Equity Markets” implicates the rising cost of being a publicly listed company and the longer timetables for returns in private markets as some of the reasons that large companies are pursuing private equity investment.
“Companies are no longer using public markets in the same way to raise capital,” said Liang Yin, senior investment consultant at the Thinking Ahead Group, a WTW think tank.
“The decision to list is increasingly driven by the desire to cash out and that normally happens when businesses reach a scale so large that only the public market provides enough liquidity to allow many of the early investors to cash out at the same time.”
One company named in the report is Uber, which had already raised $22 billion from private investment before going public, where it listed US$8.1 billion in new shares. The report also singled out tech stock Spotify, which did not offer any new shares during its public offering.
To gain access to growth opportunities earlier on, Willis Towers Watson recommended investing in private equity or venture capital funds.
The report also highlighted co-investment as an option, whereby a private equity fund invites a fund investor to co-invest in a specific company.
Direct investment was also flagged as a possibility.
Ms Yin said technology may well drive evolution in this space with the advent of crowdfunding platforms.
“It’s possible that crowdfunding platforms that already exist to connect businesses and investors in private markets could evolve to become the new private stock exchanges or even utilise the benefits of fractional ownership offered by blockchain technology to open up investment in private markets to a new segment of the investor community.”
The global private equity space has grown more than 500 per cent since 2000 and is now valued at over $3 trillion.