How Private Markets Fill The Investment Gap

Ever feel like there’s a world of investment opportunity out there, but it’s happening behind closed doors… and you’re locked out? You’re not imagining things. New initial public offerings (IPOs), when a private company offers its shares to the public for the first time, are few and far between, and private markets are now playing a growing role in the investment mix.

As Mesh MD Connie Bloem recently said on the Magic Markets podcast: “If you’re only investing in the public market, you’re missing out.”

In South Africa, the number of companies listed on the JSE has plummeted from a peak of 669 in 1998 to barely 300 today. IPOs are few and far between, and when they do happen (like the recent Boxer IPO), retail investors find themselves on the sidelines.

It’s a similar story in the United States, where Willis Towers Watson (“WTW”) recently found the number of public companies falling from a peak of over 8 000 in the late 1990s to just above 4 000 in recent years.

“The pace of public listings has slowed to a crawl,” WTW noted. “Between 1980 and 2000, an average of 310 companies went public annually in the US, whereas from 2001 to 2011 that number dropped to just 99.” That represents a significant 43% decrease in the number of listed, quality companies.

How IPOs Have Changed

It’s not just that companies are not going public; the current trend is also for those that do, to delay their public listing and rather raise capital through private channels. This delay means that substantial growth and value appreciation happen away from public scrutiny – and out of reach of public market investors.

Speaking to Magic Markets hosts Moe Knows and The Finance Ghost, Bloem cited a 2023 Morgan Stanley report which found that, in 2000, the median age of a company at initial public offering (IPO) was approximately 4 years. “Today, that number has increased to over 11 years,” she said. “This extended private phase allows companies to mature and grow significantly before they enter public markets.”

That tracks with data from the Swedish-based global investment organisation EQT Group, whose recent report noted that: “The average age of a new public company jumped from 4.5 years in 1999 to more than 12 in 2020, and around 60% of unicorns (valued at over USD 1 billion as private firms) stay private for at least 9 years.”

This has created a problem for investors – especially those who rely solely on public markets. It’s not just a challenge of delayed gratification (as an investor, you hate to wait for a great opportunity); the problem is that a company’s most substantial growth phases often occur before it goes public.

What this means, Bloem explained, is that investment markets are seeing a structural shift in where value is created and how companies grow. Public markets are increasingly becoming the place where early investors exit, not where real growth begins.

“Companies experience around 90% of their growth before their listing,” Bloem said. “If you’re only investing in the public markets, you’re missing out on a massive part of the market’s growth.” Or, to put it another way: if you’re not in the private markets, you’re coming into the movie as the end credits are rolling.

Investing In The Right Market

As the EQT report frames it, “there’s a bigger universe of private companies than there’s ever been before – and more of the value creation is taking place away from the public markets.”

“For investors, private market growth offers a compelling opportunity: a more diverse portfolio, the potential for greater returns, and investments traditionally accessible only to institutional investors,” EQT stated. “Investors who limit themselves to public markets are accessing only a fraction of the investable universe, missing out on both diversity and opportunities for excess returns.”

That’s the problem statement. But what’s the solution for investors who want to get into the private space?

Bloem says that platforms like Mesh.trade, which open access to private markets, are no longer a luxury. “They’re the only way to stay relevant,” she says. “Whether it’s direct placements, secondaries, or alternative asset-backed securities, investors need exposure beyond the public ticker.”

Today’s top-performing companies grow in private, and the best returns have already been captured before they become available to public investors. “It’s no longer enough to be in the market,” Bloem concludes. “You need to be in the right market.”

• Listen to the full Magic Markets podcast episode.