A constant refrain in parts of the investment field is that listed companies have declined dramatically, requiring clients to find drivers of return in private companies instead. However, the Geneva-headquartered bank says fears of a shrinking equity market are unwarranted.

Amidst all the rise of private market investing, it is often said that because the number of listed firms has shrunk in some places, policymakers must widen private market access to the mass investor. Otherwise, so the argument goes, popular capitalism will suffer. 

It might be a necessary corrective to this narrative, however, to note that, as of April this year, figures from Investopedia showed that there are about 53,795 listed companies worldwide. (Some sources appear to have up to 58,000 companies, depending on sources and timing.) The Nasdaq market has more than 3,500 companies; the New York Stock Exchange has over 2,000; the Shanghai Stock Exchange has more than 2,100 companies; and the Tokyo Stock Exchange has more than 3,900 firms. There are more than 1,300 on the London Stock Exchange.

And while some markets have seen an exodus of listed firms – the UK has seen a steady fall from more than 2,400 in 2015 – it is a mistake to assume that investors seeking listed opportunities face a significant global challenge, a private bank argues.

“There are still very many listed companies,” Nicolas Roth, head of the private markets advisory team at Union Bancaire Privée, told this publication in a recent call.

Roth argues that while private market investing has its virtues, basing the case on this area on the notion of a dying listed market is probably misleading. 

There has been a torrent of commentary about the virtues of private market investing. Governments have noticed. The US government, for example, has given those with 401(k) retirement plans freedom to hold such assets. In the UK, the Long Term Asset Fund is designed to give access to this area, as is the EU’s ELTIF structure. A word that is sometimes thrown around in terms of access is “democratisation” – hitherto, areas such as private equity were largely confined to ultra-HNW individuals and large pension plans.

Roth, while he says such assets have their place in certain portfolios, said part of the driver of all this private market noise is marketing and a crowd-like fashion. Also, private market general partners need to expand their investor base because traditional buyers have slowed down reinvestments.

“One of the reasons why private equity players and managers in the US are designing products for the retail market is because the existing [institutional] market has slowed down significantly. The institutional market is fully allocated and is expecting distributions or exits,” Roth said. For various reasons, ranging from Covid disruptions to a backlog of IPOs, private equity exits have been delayed. 

“At the moment, alternative [investment] managers see the retail and private wealth channels as new capital pools and are tapping it as a relay of growth,” Roth said. There was a similar process after the 2008 financial crash when something similar happened with hedge funds, and the move to put those entities inside European UCITS wrappers where strategies were watered down. Unfortunately for such funds, performance has been broadly “disappointing,” he said. Today, institutional hedge fund investors are more likely to be found using offshore structures instead, Roth continued.

Roth is not alone in striking a sceptical note: this news service’s North American sister publication, Family Wealth Report, picked up on concerns from parts of the US industry earlier this year about the involvement of retail money.

Who decides?
With private clients and those deemed to understand the issues and read the fine print, there is not a problem with private investing. However, in the case of a pension fund, for example, which is run by a manager using his or her discretion, the ultimate end client is not making the judgement about the wisdom or otherwise of such assets, Roth said. 

“The danger is that if you remove all the guardrails and put all that [private assets] into a Mom and Pop account, that’s where you have a problem,” Roth said.

Cautious 
In the traditional Swiss private banking area, Roth said, account holders are generally “conservative,” holding cash, stocks, some commodities, hedge funds and structured products. Nevertheless, private markets are gaining market share. 

Roth was asked what he thought of a trend of large private market firms such as BlackStone offering “evergreen”, or perpetual structures for such assets, with no set exit points and capital calls. Roth said these funds are useful for private clients as an introduction to the asset class. “They allow private clients to dip their toes into the water for the first time and experience how they perform,” he said. He also noted that funds offered by tier one managers are running decent liquidity sleeves and have the right mechanisms in place to protect investors. 

“Evergreens are good entry points for the wealth management business, although more sophisticated clients may require access to closed-end structures or direct deals,” he said. 

Elsewhere, the investment management industry continues to ponder the implications of a shift from public to private markets. Yesterday, at the Bloomberg Investment Management Summit in London, attendees – including this news service's editor – were reminded that since 1996, the number of listed companies on the US stock market has shrunk by 50 per cent. 

"Private markets, by any metric, have outperformed public markets...there has been a massive decline in the number of companies on public markets," David Jeffrey, head of Europe, StepStone Group, told the conference.

The conference was told that inflows to private markets are being increasingly dominated by a handful of large firms.