According to McKinsey, by nearly any measure, private equity has outperformed public market equivalents with an average net global return of 14% per annum. Simultaneously, the number of private companies that entered the public market grew dramatically with a record 64 per cent year-on-year increase to 2,388 IPOs in 2021. Taking into consideration both these phenomenon’s, it is understandable that investors are now eyeing private market opportunities where they have the opportunity to invest pre-IPO to maximize returns.
While this may already be feasible for larger funds and private equity firms, it remains a challenge for retail investors. As private market start-ups around the world continue to strive towards greater valuations and record-breaking fundraising rounds, we identify an accessibility problem that needs to be addressed. How might retail investors access private equity investments?
One solution is the establishment of a secondary shares marketplace for private equity whereby investors, shareholders, founders and employees can list their rightfully owned shares at a fair market price even prior to an IPO. In mature markets such as the United States, such marketplaces have been growing and have received massive market acceptance and adoption. Forge, the first market mover established in 2014, has brokered transactions for over 400 companies including the likes of now listed UI Path, Peloton and Affirm. More recently the platform has seen transactions for still private highly demanded unicorns such as Impossible Foods and Discord.
Forge’s success has led to the rise of other players including EquityZen, Nasdaq Private Market and CartaX. Demand for similar ecosystems is growing tremendously across the globe. Here in Southeast Asia, however, there has yet to be a successful secondary marketplace. Everyday the region’s ESOPs pools and start-up valuations grow and a strong argument can be made for the establishment of a regional secondary marketplace that will allow investors to access private equity fairly.
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