Capital Markets Insights

The Rise of Private Capital Markets

Capital Environment Changes Drive Imperative for Financial Institutions to Adapt.

In recent years, a seismic shift has been underway in the investment landscape, with private capital markets emerging as the dominant force for industry growth. The traditional appeal of public markets faces competition from a growing preference for private investments from investors and issuers, signalling a long-term trend that could see public markets wane in significance over the next 5 to 10 years.

Moreover, the once-rigid boundaries between public and private investments are blurring, ushering in an era of enhanced investor solicitation flexibility, secondary liquidity, and technological advancements to improve transaction efficiency and transparency. The convergence brings a unique blend of strengths and promises a dynamic and investor-friendly future for the financial industry.

Private Markets Surge as Public Markets Stagnate

A recent report on Yahoo Finance highlights a noteworthy trend in Canada of go-private transactions outpacing new public listings (IPOs). The article "Take-Privates in Canada Outnumber IPOs as Market Treads Water" underscores how companies increasingly turn to private markets, shunning the once-preferred route of a public listing. This shift in investor sentiment indicates a broader global movement toward the private sphere.

Read the full article: Take-Privates in Canada Outnumber IPOs as Market Treads Water.

The United States has experienced similar trends in recent years, and between 2020 and 2022, aggregate growth of US private offerings meaningfully outpaced the growth of registered offerings.

The Proliferation of Private Equity Offerings

Adding further weight to the rise of private capital markets is increasing investor demand for private investment offerings at both the retail and institutional level. A recent survey of North American family offices conducted by Campden Wealth and RBC found that family offices are increasingly diversifying away from traditional stocks and directing their funds into the private sphere.

Leading companies like Wealthsimple are adopting adaptive strategies, and recently, they announced the introduction of a private equity offering for retail investors. This shift in focus by a company renowned for its robo-advisor public market offerings highlights the increasing accessibility and attractiveness of private investment opportunities.

Read the full article: Wealthsimple Rolls Out Private Equity Offering for Retail Investors.

Extended Stays in the Private Realm

Increased institutional capital allocation to private offerings is one of the key drivers behind the trend by many companies to remain private for more extended periods, foregoing the traditional path of an initial public offering. The allure of private funding, coupled with a desire for increased flexibility and control, has led numerous issuers to opt for extended stays in the private realm. This decision challenges the conventional narrative that an IPO is the ultimate goal for companies or funds seeking growth and expansion.

The Future: Adapting to Private Markets

As the private markets continue to grow, companies traditionally focused on public markets must adapt to stay relevant. This adaptation requires a shift in strategies, embracing the dynamics of private capital markets, and understanding the changing preferences of both issuers and investors.

  • Investor Preferences: Investors are increasingly drawn to the private markets for their potential for higher returns, reduced volatility, and the allure of investing in companies with significant growth potential. Public market players must recognize and respond to these preferences by diversifying their offerings and exploring innovative ways to bring private investment opportunities to a broader investor base.
  • Issuer Strategies: Companies eying public markets need to reassess their timelines and consider the advantages of staying private longer. Understanding the benefits of private funding, such as avoiding the pressures of quarterly reporting and maintaining greater control over strategic decisions, will be crucial in shaping future business strategies.

The increasing popularity of private offering vehicles is inviting more regulatory scrutiny and potential regulations, and proper deal management and compliance are becoming more critical to all the stakeholders of the private capital ecosystem.

Conclusion: Forging Ahead

In conclusion, the evolving landscape of investment preferences, coupled with the flourishing private capital markets, suggests a paradigm shift that could see the public markets in a state of decline for the foreseeable future. Companies that embrace this change, adapt their strategies, and position themselves within the burgeoning private markets will likely emerge as the new leaders in the dynamic world of finance. The future belongs to those who can navigate and capitalize on the opportunities presented by the rising tide of private capital.