“The pendulum has swung excessively in the direction of private markets,” said Mohamed El-Erian.

There is a striking decline in the number and value of Initial Public Offerings (IPOs) to raise capital across the globe. Macro-economic and political factors such as trade wars, Brexit, and growth fears played a role in this trend, says the FT.

But there is also concern that increasingly, both issuers and investors may be gravitating to private markets.

Anomaly: Global stock markets off to the races but IPOs slacken

Granted, the IPO markets in recent times have taken it on the chin from the WeWork debacle. Also, the post-IPO declines in stocks such as Uber, Lyft and SmileDirectClub.

But can these explain away the drop in IPOs given the FTSE All-World index of blue-chips is currently at a record high and is on course to chalk up its best year in a decade?

Besides, on an overall basis, the 100 largest global IPOs have, on average, given a post-listing return of a respectable 20.4% this year. A Renaissance Capital ETF focused on large issues is up a solid 33.6% this year despite WeWork. So, the bullishness in the markets has rubbed off on IPOs, too.

In general, the fallout from bullish stock markets is an increase in the number of IPOs because, normally, companies would like to raise capital at the richer valuations prevailing at such times.

But the numbers don’t support that theory.

Consider this:

• New listings worldwide this year at 1,237 are down to their lowest in three years
• At $188.8 billion, the amount raised is similarly the lowest in three years
• In Europe, the Middle-East and Africa, the number of IPOs (179) this year fell 40% from 2018, and to the lowest level in seven years
• New listings plumbed a five-year low in Asia
• In the Americas, IPOs fell 15%

Trend: Shrinking public markets, burgeoning private markets

According to FT, the number of companies listed in the US markets has nearly halved. Further, the number of shares floating in the market of still-listed companies has also shrunk due to buybacks.

Public markets’ losses are the private market’s gains. It appears that investors have grown an appetite for fast-growing but unlisted companies available as private equity investments. Issuers, thus, are now assured of private capital without the hassles of a public IPO.

“Companies are staying private for longer and getting funded longer,” says Jim Cooney, head of equity capital markets for the Americas at Bank of America.

Meanwhile, dry powder (unspent capital) held by private equity firms is at a record $771.5 billion, according to the WSJ. This statistic shows both investors’ appetite and the paucity of deals.

Outlook for IPOs

Is the downtrend in IPOs irreversible? Maybe not.

“The pendulum has swung excessively in the direction of private markets,” said Mohamed El-Erian, chief economic adviser for Allianz. “Now we are finding that the pendulum is trying to swing back but it’s not that easy — making the transition from private to public markets is harder.”

There’s a positive note too from JPMorgan: tech offerings slated 2020 may hand the advantage back to new issues. “Many of these companies are disrupting large markets, taking meaningful market share, and present compelling opportunities for investors,” says Greg Chamberlain, head of technology, media and telecoms equity capital markets.

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