The global stock market is seeing record high share prices, but at the same time, the supply of stocks is shrinking. This trend is driven by the fact that more companies are choosing to stay private rather than go public. Private-equity funds have grown significantly, giving founders more options and less pressure to list their companies on the stock market.
Founders have several reasons to remain private, including the rise of intangible assets like intellectual property and brand recognition. Companies with intangible assets may prefer to keep their strategies and financial information private to avoid undervaluation or potential legal issues. However, this trend may have negative implications for investors, regulators, and retail investors who rely on the transparency of public markets.
Institutional investors are increasing their allocations to private equity, providing exposure to privately held investments for retail investors through pension and mutual funds. Regulators may consider imposing tighter requirements on large private companies or reducing disclosure requirements for public firms to bridge the gap between public and private markets. However, past efforts to increase transparency in private markets have had mixed results.
Ultimately, the future of stock markets may depend on the actions of private-equity investors seeking to cash out their holdings. With $3.2 trillion in unsold assets, private-equity funds will eventually need to exit their investments, potentially leading to increased activity in public markets. However, the shrinking public markets are a cause for concern, as they impact various stakeholders in the financial ecosystem.
For more insights into financial markets and investment trends, be sure to check out our columnist Buttonwood’s articles on topics like China’s central bank, global currency building, and the impact of private markets on public support for business-friendly policies. Stay informed and stay ahead of the curve with our expert analysis.
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