What's happened to the IPO market?

Why are we seeing fewer IPOs today?

I would say it is driven by two things, a more uncertain geopolitical environment, as well as a softer macro backdrop. So we do see a lot of public market volatility, and that has led to a lot of companies not choosing to go for an IPO just because they don't see the optimal pricing, or they do not expect the prices or the share price to be treated in the way that they would like, which is why it's been a rather subdued IPO market over the last 12 to 18 months.

Do private companies need to go to public markets for capital anymore?

I would say that is one source of capital, but there remain other options for them to raise capital, and one of the areas that they could raise capital from is really from private investors or private equity investors. So I think that provides a good alternative to the public markets. And of course, if you're a listed company, there are all sorts of obligations, all sorts of scrutiny, and there's a share price that you probably have to watch and manage. 

You don't get all these pressures if you remain as a private enterprise, which is why when we looked at the trends, at least in the US market, we see an adverse relationship between privately held and publicly listed companies. We see the number of private companies gradually stepping up over time, and it's the opposite trend for publicly listed companies. That's a good dynamic because it creates a larger addressable market for private equity investors to be selective and to invest.

Given the IPO market has been quite quiet, how are private equity firms exiting investments?

Private equity GPs or private equity firms, tend to have a few tools at their disposal when they think about exits. So IPOs obviously would be one potential route, but they commonly use two other routes. The second would be a sale of the asset to another private equity sponsor, and that's particularly prevalent in the small mid-cap space. A lot of these small mid-cap GPs grow a company to a certain size and scale, and then they sell it on to some of the larger funds that have to deploy larger amounts of capital and have the capabilities to take this company to the next level of growth. So this it what we call the secondary buyout or sale to a financial sponsor, which is another common route of exit.

This third route of exit is really a strategic sale. So this is where a private equity GP grows the company, improves its operations and creates a strategic or scarcity value around the asset such that a multinational company or corporation would acquire the asset from them as a complement or an add-on to the existing business. We see that a lot, particularly in corporates acquiring assets to enter a new market, acquire capabilities or acquire a new product. So a sale to a corporate is one of the other common exit routes for private equity responses.

Given that some of these innovative companies no longer need to come to public markets for capital, are there more growth opportunities in private markets?

I would see it in a balanced fashion. On one hand, the public markets remain very deep and massive, so I think it still provides good opportunities for investors to get exposure to high-growth stocks. But at the same time, we see massive growth in the private markets as well, just by looking at the size of the private equity AUM and the universe of companies that they have invested in within the portfolios. 

Ultimately, as a private equity investor, you take on more risks, but the returns and the numbers speak for themselves - regardless of whether you're looking at a 5, 10, 15, or 20-year horizon, private markets have outperformed public markets. And this is really us making the case for private markets having a place in investor's portfolios.

Unique characteristics mean unique opportunity

At a time when investors are cautious about the return outlook for traditional public markets, private equity offers important long-term advantages, including strong historical returns and diversification benefits. Find out more.

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Neuberger Berman Global Private Equity Access Fund (AUD)

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