The shift from public markets to private markets by institutional investors could have “profound implications” for retail investors, said the CFA Institute.
The organisation found investors were seeing fewer IPO investment opportunities and “could miss out on the returns provided by rapidly growing new businesses whilst they are kept in private hands”.
In a report, ‘Capital Formation: The Evolving Role of Public and Private Markets’, CFA Institute said it was estimated that the median time to IPO for US companies has risen from 3.1 years in 1996, to 7.7 years in 2016.
The increasing ability of entrepreneurs to access private capital has encouraged a shift from public market capital-raising, and by the time firms do IPO, “much of the value [was] already extracted”.
CFA Institute’s paper makes some policy recommendations including making access to private market investments for pension savers through professional intermediaries.
The organisation also called for better disclosure and transparency standards in private markets, where the large amount of capital waiting to be invested – known as 'dry powder' – has increased in recent years and there is a growing perception that valuations are high with no discount for the illiquidity of the underlying investments.
Sviatoslav Rosov, director of capital markets policy at CFA Institute, said: “Individuals are being told to save for their retirements by investing in the public markets at a time when companies are increasingly preferring to avoid or defer a public listing.
“This may deprive savers of the ability to participate in high-growth business models and further promote the sense that markets are being operated for the benefit of ‘insiders’.”
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