In a recent paper, LNWM Client Advisor Brian Whitaker and Senior Investment Analyst Josh Hile teamed up to explain why we are increasingly seeking out private market investments. One key reason: the US equity market is offering less diversification than in the past. As the chart above shows, there are about half as many publicly traded US companies now than in the year 2000 (and significantly fewer than in 1980), even as the total value of publicly traded US companies has risen significantly to equal 50% more than US GDP, which recently stood at just over $20 trillion (up from around $14 trillion in 2009).
There are many reasons for the “fewer and bigger” shift in the US public equity markets. For one, industry consolidation. Just as key, not as many companies are going public via Initial Public Offerings (IPOs) — see chart below. That’s because funding is readily available from venture capital groups and private secondary offerings. As more companies delay or forego IPOs, more of the gains in equity valuations are being transferred to private investors.