N&Q: Why family offices see the investment future


Private company investing is booming as equity markets shrink

Here’s why family offices might just be onto something with all their private market investing. The investment boom in private companies is being driven by some interesting long-term trends, namely the slow death of public equity. Why invest in public equity when the market for those equities is diminishing rapidly?

The number of listed US companies have almost halved in the past 20 years, and the global volume of initial public offerings is now at its lowest level since the depth of the financial crisis in early 2009, according to Dealogic. Robert Buckland, chief global equity strategist at Citigroup, recently said the world is facing a structural downturn for equity demand, not just a cyclical one.

Here’s another factor leading to the lack of public-market activity, which hasn’t as far as Family Capital can judge, been mentioned yet – the growth of the long-term company. Growth is being driven by the popularity of the family business model, which has flourished since the financial crisis. More and more investors prefer investing in companies that are committed to the long-term, rather than the short-termism of listed businesses. If the smart money is targeting private market investing won’t that accelerate the fall in public market investing even further?

Of course, few trends move in a linear direction, but there might just be something in these trends that are wittingly or unwittingly leading more investors to pile into non-listed businesses. Just as family offices saw the early trend in hedge fund investing, maybe they are seeing the early trend in private company investing.