The growth of the private markets is often measured in terms of dollars flowing into funds and deals. But those metrics don’t capture their true volume.
It turns out that private market and venture-backed companies are worth more than they appear to be. They are growing more quickly than public markets. This will have implications for how they will be scrutinized and regulated in the future.
The last two decades have seen the growth and consolidation of private markets. These revolve around funds gathered from institutional investors by “alternative asset managers” typically private equity or venture capital firms that have expanded into credit. In an environment of light regulation, long investor horizons and low interest rates, the involvement of private market funds in firms’ investment financing and restructuring has grown over time.
Private markets have three features that distinguish them from public markets. First, there is limited liquidity transformation because investors commit capital for extended periods. Second, these investors tend to be large and sophisticated entities such as pension funds, whose focus on long-term returns enables target companies to confront significant earnings volatility. Third, the regulation of private market investment vehicles is relatively light, partly reflecting the lesser degree of liquidity mismatches and also the limited presence of retail investors.
Key Takeaways
Private capital markets have become a major force in all aspects of firm financing and restructuring
Financing is routed mainly through alternative managers which offer a suite of private equity, venture capital and private credit funding options.
Funding provided through private markets is not just cyclical and sensitivity to monetary policy varies.
Private capital markets provide young and innovative firms with better access to finance, supporting long-term economic growth.
Article by: Rakesh Parikh
Rakesh is a Managing Director and founding member of Pivot Capital LLC. As a registered certified public accountant, he’s spent the past 20 years in private practice as the founder of One Capital Financial Advisors, Inc. advising clients in accounting and financial services including audits, reviews, compilations, valuations, tax advice and LLCS corporate preparation. His work also includes mergers and acquisition advisor, certified exit planning advisor to small business and family partnerships as well as due diligence in buyer-side target acquisitions.