By Shari Noonan, CEO and co-founder of Rialto Markets
Private markets have been growing at an extraordinary rate over the past two decades.Today they represent an estimated $11.5 trillion asset class, according to McKinsey’s 2022 Global Private Markets Review and are poised to grow, say Forbes, to $30 trillion by 2030.Conversely, public securities have dwindled. The number of public companies has reduced from 8,000 in 1996 to just 3,290 today.
In fact, just in recent weeks, U.S Security and Exchange Commissioners have asked the SEC Small Business Capital Formation Advisory Committee to address the issues surrounding the decline of U.S IPOs.
Yet, private markets and securities have lacked infrastructure, growing through tedious multilateral negotiation, physically documented agreements, and a protracted investment process. This inefficiency has limited their participation in the initial investment process.
Additionally, investors may find a lack of possible exits for these private security investments compared to public assets, potentially restricting investors from participating. Capital may be tied up in the investment for the duration without the ability to separate the investor exit strategy from the corporate exit strategy or private fund monetization mechanism.
This inability to exit an investment, win or lose, is a leading reason investors express hesitation with investing in private securities. This limitation not only impacts any potential monetization capability post investment, but actually limits the participation in the initial investment since investors need to incorporate illiquidity among other risk factors into their initial investment thesis.